Cleantech investors and carbon and RECs (pt 1)
To start with -- what are carbon credits, and what are RECs, and why are they different? It's a confusing issue right now. You can get some useful descriptions here, but let's break it down into the differences from an investor's perspective:
Carbon credits ("offsets") are a representation of a physical commodity (albeit in this case a "negative" one). If you own a 1 ton carbon emissions reduction credit, you literally own that physical attribute -- one ton of avoided emissions of carbon into the air. In this way, they're similar to NOx, SOx and other pollution emissions credits. Or like selling a ton of corn or metals or any other physical commodity. Now, measuring and verifying an absence of a physical commodity like atmospheric carbon emissions is tougher than measuring a ton of corn or metal, but the principle remains the same.
Renewable Energy Certificates ("RECs" or "Green Tags") are a representation that the electricity you are using came from green power. That's a very different proposition -- essentially, the REC is a way of branding the electricity. Indeed, in most cases the kwh you actually consume came from a blended mix of fossil fuel-based and renewable sources (mostly the former), so buying a REC is a way of paying extra money that then gets transferred back to the renewable generators in particular (and through other hands along the way...). It's not a physical commodity you're buying. You're buying a label that shows your money went toward something you want to encourage.
It may seem like an esoteric difference, but one way to think about it is this: Carbon credits are related only to climate change; RECs bundle in a lot of other issues as well, such as local air pollution, energy independence, etc. The various differences (physical commodity versus labeling, and climate change-focused versus broadly conceptual) are important for investors, as we'll discuss in the next post on this topic. (Part Two) (Part Three)
In other news this week:
- We've talked before about the rise of online green media. This week came announcements of two more fundings in the space: PE Week Wire reported that SustainableCircles (d/b/a SustainLane) raised a $3.5mm Series B. Also announced this week was that PointOV (d/b/a EthicalSuperstore.com, which aims to be the "ethical Amazon") raised 800k GBP -- 500k GBP from the NorthStar Equity Investors, and 300k GBP from angels. NSEI had previously backed the company with a 200k GBP investment in June, 2006. PointOV reports that they now have a 1mm GBP annualized gross revenue rate.
- Jon Shieber at VentureWire reported earlier this week that Biodiesel Technologies has raised "under $5 million in an institutional round of funding." Adirondack Venture Fund and Roberts Mitani LLC provided the financing, and the company expects to raise a larger round later this year. The company estimates their modular approach could provide 4mgpy biodiesel plants at a cost of $1.25mm per plant (full production costs were not provided).
- In a bit of corporate restructuring, publicly-traded cleantech investor GreenShift is merging with GS (for "GreenShift") Cleantech Corp. and GS Carbon Corp.
- SJF Ventures (f/k/a Sustainable Jobs Fund) announced successful fundraising, with $28mm of new capital, about half of which is to be devoted to cleantech investments. Interesting quote from David Kirkpatrick on the topic of rising cleantech startup valuations: "That's why I'm glad we're not cleantech only."
- In other news of cleantech investors, here are some nice profiles of several leading investors in the space -- although I've never seen Tucker with "lab coat in hand!" Someone should explain to the reporter that the semi-mandatory, unofficial VC uniform is grey slacks, blue shirt, blue jacket... Other "people" news: Wilson Sonsini is expanding their cleantech practice... And Steven Turner has joined Ventures West with a specific focus on cleantech.