Wanted: Chinese cleantech capital and connections

With the emergence of China as the globe’s cleantech powerhouse (see Why China has already overtaken the U.S. in cleantech), it’s become fashionable for cleantech companies with products to sell to target China seeking large purchase orders.

What’s not been so popular is to go to China seeking investment capital.

We and a handful of companies did both last week. And we learned a bit about the current state of cleantech in China in the process.

The latest installment of the Northern Cleantech Showcase, Kachan’s event series that matches leading cleantech companies with investors and large enterprises around the world, presented seven of the most interesting Canadian cleantech companies seeking linkages with China to teeming invitation-only rooms in Beijing and Shanghai. But more on that in a moment.

Venture alive and well in China
Why go to China for capital? Selling into China makes sense, but equity investment? While not yet a genuine nexus of VC like North America or Europe, there’s been a potentially important upswing in cleantech venture capital deals in China in recent months.

Industry observers take note: At $176 million as tracked by cleantech data provider the Cleantech Group, more cleantech venture capital was invested in China in the second quarter of 2011 (the latest quarter for which numbers were published as of this writing) than any other country except the U.S. This is potentially significant, as China has historically trailed as one of the least active jurisdictions for cleantech investment since the category’s inception in 2002.

That said, quarterly analyses should always be taken with grains of salt—as one or two quarters do not always meaningful trends make—but China, in this latest quarter, dramatically pulled ahead of Canada and the U.K., traditionally strong countries after the U.S. So it was timely that we were in China asking for money.

Cleantech Venture Investment by Country Q211

Source: Cleantech Group

The rise of Chinese corporate capital
Venture capital aside, in the two years since I last visited mainland China, another dramatic change seemed the level of interest from state-owned and other businesses in clean technologies. It’s indicative of China’s new green order: the country’s latest five year plan places a strategic emphasis on clean and green technologies as a cornerstone of China’s economic growth and improvement in standard of living. And what its five year plan articulates, the country implements. Fast.

For instance, China’s ENN—the largest private clean energy solution provider in China, which sent someone to meet our Northern Cleantech Showcase companies—just announced that it intends to invest $8 billion in clean energy overseas in the next decade. That’s one company earmarking eight times the amount the Canadian government (through its arms-length cleantech investor SDTC) has committed for venture-style investment into cleantech innovation. Other state owned enterprises sent people to meet with our companies. Corporate China has been told to get into cleantech, so expect it to do so in a very big way, very quickly.

It’s easiest to appreciate just how fast China can react to central government decrees by comparing before-and-after pictures of places like Shanghai.

Shanghai skyline

In only twenty years, Shanghai transformed into a decidedly vertical city. Consider the investment of power, petroleum, materials, capital and human effort required.

Cleantech companies featured in China
I was in China last week presenting seven companies selected by a jury of partners and venture capitalists. In some cases, the companies were seeking investment. In others, they sought joint ventures and partnerships. Having done cleantech business in China for many years, we invited appropriate investors, state-owned enterprises, multinationals, potential joint venture partners and others most likely to propel our delegate companies. And like our last event to the Bay Area (see Seven cleantech companies Silicon Valley just learned about), the formula worked; the presenting companies got quality leads.

Northern Cleantech Showcase Beijing China 2011

Attendees in Beijing listen to pitches from 7 innovative cleantech companies at the Northern Cleantech Showcase at Ernst & Young’s offices. More photos from the event on Kachan’s Facebook page. Like our page and follow us.

In alphabetical order, companies that presented at Northern Cleantech Showcase China 2011 included:

Delaware Power Systems: Technology for EV and PHEV battery systems – Electric vehicles require advanced battery systems to provide reliable power. Delaware is focused on developing scalable smart battery modules for EVs. Its technology promises to make EV battery systems safer, more reliable and last longer while reducing cost.

EnerMotionWaste heat recovery from vehicle engines – EnerMotion improves energy efficiency in current and future vehicle technology, provides environmental benefits, maximizes existing transportation infrastructure and offers a fast payback for customers.

EnovexCarbon capture with lower capital cost and energy requirement – Today, the best carbon capture solutions impose 30-35% energy penalties on power plants. Enovex has developed a system only requiring half that, and has attracted interest from large energy companies.

Eve Innovations: Coal-like fuel replacement from waste – By converting almost all organic waste to a commercial fuel product for industrial or retail markets, Eve Innovations removes the need to dispose of the waste, thereby reducing costs and logistics involved with waste disposal.

exchangenergy: Geoexchange expertise – exchangenergy designs and installs high efficiency and site specific geoexchange and geothermal systems. The company is seeking international expansion into China, offering project and international best practice expertise for residential developments.

Remco Solid State LightingPower & thermal breakthrough for high power LED lighting – Key barriers have held back the use LED lighting for high power lighting applications. Remco has developed and patented technologies aimed at power control and thermal management. The company’s LED street light tests suggest it can reduce street light electrical energy consumption by up to 70%.

VizimaxAutomation systems for power grid modernization – Vizimax’s products help the electric grid reduce network outages by automating substations and the interconnection of renewable energy to the grid. Customers include Siemens, Alstom Grid, Schneider Electric, National Grid, NYPA, PowerGrid of India and others.

Leading Chinese VCs attended the Northern Cleantech Showcase presentations, and presenting companies were well received. “The presentations were informative and we made connections to interesting new companies,” said Qiyong Cao, director of research for leading Chinese cleantech venture investor Tsing Capital.

Delegate companies were awed by the scale, speed and commitment in China for embracing clean and green products and services. “Where North America has subdivisions of single family homes, Beijing and Shanghai have built subdivisions of high-rises,” noted Jeremy Jacob, CEO of Vancouver-based exchangenergy, seeking to share his company’s experience at the Showcase in building high end geoexchange systems.

Beijing NCS China 2011 networking

Attendees network with presenting companies at Northern Cleantech Showcase presentations in Shanghai. More photos from the event on Kachan’s Facebook page. Like our page and follow us.

The Northern Cleantech Showcase China 2011 events were produced with the support of Ernst & Young, the Greentech Exchange and Jiaxing Xiuzhou New Area—the business development arm of a new business park in Jiaxing, a city just southwest of Shanghai.

Jiaxing officials took Northern Cleantech Showcase delegates on a tour of the area, impressing them with logistical prowess and commitment to manufacturing scale. Large companies like ProLogis and Wal-Mart chose the Jiaxing area for distribution centers because of rail, highways and deep sea port connections.

Cleantech companies like Silicon Valley’s Sunpreme are choosing the area because of significant labor, tax, rent and facility incentives aimed at cleantech companies. And, of course, then there’s what’s increasingly referred to as “Chinaspeed”: Northern Cleantech Showcase delegates toured a Sunpreme factory in Jiaxing that had been assembled from scratch less than 5 months from when the company’s contract had been signed in April. Delegates couldn’t believe that the factory, with its spotless, polished floor and freshly painted offices, had just been built.

More information on Jiaxing’s Xiuzhou business park can be found here.

We’ve posted more photos from the Northern Cleantech Showcase China 2011 on Kachan’s Facebook page. Like our page and follow us. Or you can follow us a number of other ways here.

Originally published here. Reproduced by permission.

Electric Car Chargers for Central Parking System with 2,200 Locations

Central Parking System and its subsidiary USA Parking have announced the rollout of electric car charging. Central Parking, with 2,200 locations and over one million parking spaces, clients include some of the nation’s largest owners and operators of mixed-use projects, office buildings, hotels, stadiums and arenas as well as airports, hospitals and municipalities.

Car Charging Group (OTCBB:CCGI) will install, own and operate the charge points. The chargers are made by Coulomb Technologies. Central Parking charge points will be part of the ChargePoint® Network so that drivers can locate the charge points through Google, chargepoint.net, smart phones, and EV navigation systems.

As a Nissan Leaf owner, I often use Coulomb chargers at various locations. For example, Saturday my wife and I wanted to meet friends 40 miles away for dinner. Using chargepoint.net I located a convenient charging location, then used Yelp to find a good restaurant nearby. At the charger, I held my RFID ChargePoint card near the location, authorized the charging unit unlocked, I connected the charger to my LEAF and went off to dinner. ChargePoint even sent me a text when the LEAF was fully charged.

A couple of weeks ago, I was on a Networked Smart Grid panel with Richard Lowenthal, Founder and CTO of Coulomb Technologies. I complimented him on never having a problem with his chargers and with the internet map being accurate. He told me that Coulomb now has over 5,000 charge points installed in over 20 countries. He regularly uses the ChargePoint network to save gas. Richard had driven his Chevrolet Volt from his home in Cupertino to the San Francisco Airport where he charged with one of 14 Coulomb charge points. Then he went to downtown San Francisco and again charged. When he returned home after 110 miles of driving, he displayed that 102 miles were in electric only-mode.

United States will Soon Have 10,000 Electric Car Chargers

“There are close to 17,000 parking garages in the U.S., and they will play one of the most vital roles in the development of a national EV charging infrastructure,” said Brian Golomb, Director of Sales of Car Charging. “By partnering with two of the most important companies in this sector – companies that understand the benefits of electric vehicles – we will move much quicker in the rollout of this nationwide infrastructure.”

Walgreens, the nation’s largest drugstore chain, is also having Car Charging Group install Coulomb Chargers at a number of locations. Car Charging Group provides EV charging stations at no charge to property owners/managers while retaining ownership, thus allowing their partners to offer their customers, tenants and employees charging services without incurring any outlay of capital. In addition, Car Charging Group’s partners realize a percentage of the charging revenue generated by the charging services paid for by the EV owners.

As part of the agreement, Central Parking has the right to purchase five percent of the Common Stock of Car Charging Group. “We are very excited about this partnership, because it will greatly expand the reach of our nationwide EV charging network,” said Michael Farkas, CEO of Car Charging Group.

This rollout will take us to over 10,000 car chargers installed in the United States. In comparison, there are over 100,000 gasoline stations, most with multiple pumps. “Electric vehicles are no longer a mirage – they are becoming an ever increasing presence on our roads and we are proud to be working with such an innovator in the EV sector,” said James Marcum, CEO of Central Parking Systems.

Through the end of 2012, Nissan is building 100,000 electric cars and GM is building 80,000. According to a new report from Pike Research, cumulative sales of plug-in electric vehicles will reach 5.2 million units by 2017. Car Charging Group uses the forecast of 40 million plug-in electric vehicles on the road by 2030.

The Great State of Uticana

Last week, at the stunning student union of The Ohio State University, Battelle convened a meeting entitled 21st Century Energy & Economic Summit on behalf of Ohio Governor John Kasich, who both opened and closed the conference with some observations.   The agenda covered a wide spectrum of energy issues facing Ohio, and didn’t lack for interesting moments.

One of the hot issues in Ohio energy policy is whether the renewable portfolio standard and energy efficiency provisions of the last major energy act, SB 221 from 2008, are vulnerable.  Indeed, some of Kasich’s fellow Republicans in the Ohio Senate recently released SB 216, a bill to completely eliminate the renewable and efficiency requirements of SB 221 — although it is widely viewed that the bill has no chance of passage.  Acknowledging this, as reported by The Columbus Dispatch, Kasich said in his introductory remarks that several parties are “trying to get me to say we don’t need renewables here.”  But, he continued, “of course we need renewables.  Of course we need solar and of course we need wind.”  In his concluding remarks at the end of the two-day event, he reiterated that “I believe in renewables.  My kids believe in renewables.”

Kasich also had a kind comment for his predecessor, noting that the Strickland Administration had done “a number of good things on energy efficiency for the state” that needed to be built upon.

Nevertheless, expect some retrenchment that will not fully please renewable and efficiency advocates:  in his closing remarks, Kasich circled back and noted that he thought SB 221 would probably benefit from some tweaking, using as an example his exasperation that cogeneration hadn’t been given appropriate eligibility.  All signs point to hearings in the Ohio Assembly later this year to re-evaluate SB 221, although the Governor’s stated position providing some cover to renewables and efficiency seems to indicate that SB 221 at least won’t get entirely discarded or thoroughly trashed.  Stay tuned.

Indeed, one of the central themes of Kasich’s comments was that all players in the energy sector need to get along, that there’s a place for everyone, albeit maybe not to the degree that any one segment would ideally like.  As the Dispatch termed Kasich’s comments, “company executives in gas, solar, coal and other energy sectors needed to agreed to give up some turf as his administration crafts its policy.”  In kicking off the event, Kasich asked for “natural gas to work with coal, and coal to work with natural gas, and renewables to work alongside fossil fuels, and for the utilities to get along — well, that might be too much to ask,”  a perfect segue into the electric utility panel.

Attendees got to see some pretty feisty verbal jousting between Tony Alexander, CEO of First Energy (NYSE:  FE), and Mike Morris, CEO of American Electric Power (NYSE:  AEP), who differed strongly on whether competitive markets or regulated rate-base recovery mechanisms led to the best outcomes for electricity prices to consumers.  Not surprisingly, First Energy favors competitive markets — as they’ve spun off all their generation into an unregulated subsidiary and can earn attractive margins on their deeply-amortized powerplants — and is therefore unenthusiastic (to put it mildly) about renewable energy and energy efficiency requirements.  On the other hand, AEP believes that only regulation can provide enough price certainty and stability to ensure investments in new generation capacity that are both prudent for investors and customers alike. 

Keith Trent of Duke Energy (NYSE:  DUK) tried to split the difference, arguing for competitive energy markets to induce operational efficiencies and regulated capacity markets to foster capacity investment decisions that avoid boom-and-bust cycles of tightness-and-glut.  Perhaps even more striking was the different stance of American Municipal Power (AMP), the generation and transmission cooperative serving several municipal utilities in the Midwest.  To be sure, they do have a significant reason to have a different perspective:  as a non-profit corporation, they are exempt from regulatory oversight by the Public Utilities Commission of Ohio and not subject to any of the requirements of SB 221.  AMP’s CEO, Marc Gerken, indicated that his customers — the municipal utilities — were driving AMP to invest more in renewables such as hydro and wind, in large part to insulate themselves against the likely prospect that wholesale power prices will only increase due to rising fuel prices, more stringent environmental requirements and tightening capacity markets.  

Regarding coal, which the Dispatch article referred to as “long a driver of the state’s energy economy that is still subsidized with state taxpayer dollars,” Kasich noted that “we’re not going to walk away from coal.”  I remember Kasich also saying that “we’ll be using coal for the rest of my lifetime.”  However, Kasich said that we also “have to be mindful of the downside of it.  And we’ve got to think about cleaning it.”  In a subsequent interview with ClimateWire, as reported in The New York Times, Kasich acknowledged climate change as a legitimate concern, not taking the skeptical or denial positions so common to the beliefs of many of his fellow Republicans:  “there isn’t any question that the activities of humans have an impact.  As to what the extent of it is, I don’t know.”  

So, while he’s keeping the door open for coal, and supports its continued use, he’s also not blindly defending it to the death either.   I wonder if Kasich was amused or embarrassed by the impassioned rant of Robert Murray, President and CEO of Murray Energy Corporation (a privately-held Ohio-based coal mining company), in which he loudly called for the defeat of “Barack Hussein Obama”. 

All of this was preamble to the clear centerpiece of the event:  the discussion of opportunities afforded by the Utica Shale resource underneath much of Ohio.  And, the star of the show was Aubrey McClendon, CEO of Chesapeake Energy (NYSE:  CHK), by far the most visible cheerleader for shale gas exploration and production in the U.S.

As reported by BusinessWire, McClendon stated that their early test drilling results indicate that the Utica shale opportunity was likely to be very large — as large or larger as the most productive shale plays in the U.S., such as the Bakken, Barnett, Eagle Ford and (closer to home) Marcellus.  Also, it appears that it offers the potential for a three-prong play:  natural gas, gas liquids and oil.  When pressed to give a sense of magnitude of the Utica prize in Ohio, McClendon offered that he thought it could be worth $500 billion — “I prefer to say half a trillion dollars, it sounds bigger”.

McClendon restated what he had claimed in an early August appearance on Jim Cramer’s “Mad Money” CNBC show:  that he can foresee $20 billion of investment per year in Ohio for the next 20 years to pursue Utica opportunities.  Coinciding with the event, the Ohio Oil & Gas Energy Education Program (OOGEEP) released initial results of an economic analysis that estimated about 203,000 jobs in Ohio to be created by 2015 — just three years from now! — associated with pursuit of Utica shale gas.

Of course, these kinds of incredible (non-credible?) numbers being thrown around cause officials in economically-challenged Ohio to salivate.  According to the New York Times, Kasich said that “we’re sort of experiencing a gold rush.”   

The only pushback to unfettered pursuit of Utica is the rising chorus of concern from a wide range of environmental advocates about the use of hydraulic fracturing, more commonly-known as fracking, to produce gas from shale.  Among other places, New York, New Jersey and Maryland have issued moratoriums on fracking, primarily due to worries that the process will lead to water contamination, and secondarily due to fears that the activity may lead to ancillary emissions of methane (a potent greenhouse gas) and may increase prospects for earthquakes.

In the New York Times account, Kasich was adamant:  “There’s no problem with fracking.  I dismiss that.”  One of the reasons Kasich feels so confident:  under the prior Strickland Administration, the state of Ohio passed SB 165, a set of laws concerning oil/gas production that are claimed to be among the most stringent in the nation, including strong requirements for triple-casing all drilled holes to mitigate the potential for contamination or leakage to seep into other strata or release to the surface.

It appears that the Kasich Administration is bending over backwards to clear the path for Utica shale development, recently reassigning David Mustine from being the head of the Ohio Department of Natural Resources to a position that Kasich called “Shale Czar” in the newly-created privatized economic development agency JobsOhio.  From being invisible a year ago, Chesapeake has become a high-profile sponsor of Ohio State football — probably the most-scrutinized activity in Ohio — and McClendon has been known to meet frequently with top officials from Ohio.

Personally, I worry that the Utica shale is being viewed by the Kasich Administration and by certain segments of the government and private sector as the answer to all of Ohio’s issues.  Based on what I’m seeing, the state may soon be renamed “Uticana”.

I have no problem with environmentally-responsible fracking, which I believe is in fact doable, and endorse the pursuit of shale gas as long as it is truly “done right” (a phrase used often during the two-day event).  However, I fear that the Utica shale opportunity will be less spectacular than claimed — and if so, then putting all of Ohio’s eggs in that basket will have been a mistake.  McClendon and others on the shale panel noted frequently, as a disclaimer, that the drilling test results were still preliminary.  And, as the experience in other shale basins indicates, decline rates from shale production have been very steep — much more so than from conventional gas wells.

For the U.S. has long been insufficiently diversified:  we have an energy system that depends way-too-much on oil for transportation and coal for power generation.  As a result of that long over-reliance, we’re now painted into a challenging corner on a variety of environmental, geopolitical and economic fronts.  I don’t believe that any one energy solution — even those I have advocated for in Ohio, such as the offshore wind efforts being undertaken by the Lake Erie Energy Development Corporation (LEEDCo) and its partners — is the cure-all for our current challenges, or the road to future successes. 

Betting the farm on any one thing, even something as seemingly-compelling as Utica shale, will just paint us into another corner a few years from now.  To avoid this outcome, we need a more resilient and robust energy system — one that only diversification can provide.  In turn, this will require regulatory innovation, technological innovation and capital.

If I have a criticism of the two-day summit, it is that the last two input factors — technological innovation and capital — were mainly excluded from the proceedings.  There was literally no discussion of financing of the energy sector in the coming deacdes.

As for technology, the master of ceremonies, Joe Stanislaw, helped frame the conference at its outset with some big-picture remarks, including his provocative observation that “energy represents the new Great Game for the 21st Century”:  there is an intense global competition not only for the energy resources of the world, but the technologies to enable continued access to affordable energy to fuel economic growth.  Alas, the discussion panels never picked up on Stanislaw’s point.

If Ohio is to be something more than Uticana, not only does it need to pursue other energy options with some degree of vigor, it must also commit to creating an environment conducive to cleantech innovation and entrepreneurship — the font of much job-creation and wealth-creation in the 21st Century.  Surely, this is something that should be well-appreciated by Mark Kvamme (Kasich confidante, head of Jobs Ohio, and long-time venture capitalist at Sequoia Capital) and Wilber James (Kasich confidante, long-time venture capitalist at RockPort Capital, and planner of the agenda for this two-day event).

Notwithstanding the potential riches associated with the Utica shale, we cannot allow Ohio to become primarily a resource-extraction economy.  While some degree of resource-extraction is inevitable in modern society, examples near (West Virginia) and far (Nigeria) suggest that overreliance on this segment of economic activity is a path towards massive inequities and injustices, environmental degradation, low standards of living, and a wide variety of social ills.

The Networked Electric Vehicle

EV Solar  Charging Station Electric Vehicle and Smart Grid Networks

Thousands of electric cars are now communicating with owner’s smart phones, charging stations, and service networks. These EVs are plugging into smart grids that use network communications to charge off-peak, monitor and improve reliablity.

When I use my Blink EVSE to charge my Nissan Leaf, the charger sends a packet of info to the charging network every 15 minutes using Sprint. The charger is communications-ready supporting CDMA, Wi-Fi, and powerline communications (PLC). With the Nissan LEAF app on my Droid I can remotely monitor charging, or pre-heat or pre-cool the car while still plugged-in, saving battery range. My Droid uses Verizon.

While driving, the LEAF’s navigation system uses GPS. If I want to listen to Pandora, my smartphone communicates with the LEAF via Bluetooth. When I park at a ChargePoint for public charging, the Coulomb ChargePoint uses RF to talk with my member smartcard. When charging, the ChargePoint uses various wireless carriers in different countries with protocols such as GPRS and CDMA. The charger even sends me a text when charging is completed or if someone disconnects my car.

Smart Grid Uses Wireless and Mesh Networks

A DOE study identified how we can charge 170 million electric cars in the U.S. before needing to add generation such as renewables, natural gas, nuclear, or coal. Charging needs to be done off-peak. With smart charging communications that is easy to do. I have preset charging my LEAF off peak. When I connect the charger, no electrons flow until the nighttime hour is reached. State utility regulators need to allow utilities A low rate for off-peak charging and higher for on-peak charging and electricity use. No benefits occur until utilities upgrade their old one-way grid communications to two-way smart grid.

As utilities install smart meters, such time of use (TOU) pricing and demand response become realities. Beyond what is visible to their customers, electric utilities are becoming more reliable and efficient with smart grid technology that communicates: advanced meters, smart transformers, sensors, distribution automation, and intelligent energy management.

When I charge and use electricity at home, my PG&E utility smart meter uses RF mesh technology to route the data along with sensor data so that they can manage the grid, collect billing information, and allow me to view home use through an internet browser.

As wireless carriers lower their rates to compete with mesh networks, other utilities take different approaches. Texas utility TNMP is including a CDMA modem in all of the 241,000 smart meters that it is installing.

Transformers and distributed automation are smarter so that sudden changes in load can be better managed and an outage in one location does not take down the neighborhood. SDG&E is charging thousands of electric vehicles with a smart grid. http://www.cleanfleetreport.com/electric-vehicles/charging-electric-vehicles/sdge-charges-electric-cars/

SDG&E is installing smart transformers and distributed automation that more quickly isolates and handles problems. These devices communicate with centralized GIS and IT applications that keep everything running.

Duke Energy’s David Masters writes, “Duke Energy defines the digital grid as an end-to-end energy Internet powered by two-way digital technology. It is comprised of an Internet Protocol (IP) based, open standards communication network that allows for automation and the exchange of near real-time information as well as enabling the adoption of new technologies as they become available. Duke Energy’s digital grid will have more efficient and reliable transmission and distribution systems; it will leverage energy efficiency programs to reduce wasted energy; it will integrate more distributed energy resources into our grid and decrease carbon emissions.” Duke Energy is co-locating 3G and 4G cellular communication nodes with transformers. These WAN nodes communicate with RF and PLC to smart meters, charging stations, demand response appliances, street light systems, grid sensors and capacitor banks.

EPB, Chattanooga, Tennessee, not only delivers electricity to the home, it delivers broadband fiber optics for fast internet access and streaming video. While most utilities are slowly deploying smart grid, starting with smart meters, EPB installs a broadband router in the home with far more capability than a meter.

Our use of energy will get smarter as utilities fully-deploy smart grids and regulators encourage them share more information. For example, automakers are already demonstrating smart apps so that owners could program preferred charging to occur when high-levels of renewable energy is delivered to the grid, such as wind blowing at night. Smart apps and RE price incentives would encourage the growth of clean and safe energy.

Instead of firing-up dirty peaker plants on hot afternoons when air conditioning is blasting, a smart grid could draw power from utility fleets that are glad to sell power at premium rates. Vehicle-to-grid (V2G) has been successfully tested. V2G is part of our future.

On October 20, utility and automotive executives will attend GTM and Greentech Media’s The Networked EV Conference  to review the details of the convergence of electric vehicles and smart grids. GTM has published a new research report – The Smart Utility Enterprise 2011-2015: IT Systems Architecture, Cyber Security and Market Forecast

The ongoing deployment of smart grid infrastructure (i.e., smart meters and distribution automation) in the U.S. is prompting utility strategists to re-evaluate their organizations’ back-end enterprise architectures in order to enable next-gen utility business and operational services, such as dynamic pricing, grid optimization, self-healing grids and renewables integration. Utilities are just now beginning to understand the implications of outfitting their dated enterprise architectures with current information (IT) and operations (OT) technologies required to offer next-gen smart grid applications.

It will take years for most utilities to deploy smart grids. The cost will be in the billions. The savings will be in the trillions as drivers use less foreign oil and as level demand and energy efficiency replace the need for new coal and nuclear power plants.

Growth is strong for electric vehicles, renewable energy, and smart grid. The growth of one benefits the other. With smart communications, we are enjoying efficient transportation, energy independence, and clean air.

Building Energy Performance: The Johnson Controls White Paper Library

Without much fanfare, Johnson Controls (NYSE:  JCI) has developed a number of very good white papers relating to building energy performance:  energy efficiency and renewable energy implementation for buildings.

The list of white papers includes coverage of topics such as:

  • Lighting retrofits for industrial facilities – including an illustrative example of the economics associated with a retrofit indicating a payback on investment of 1.24 years (presumably, one of the more favorable examples that JCI has encountered themselves).
  • Solar energy systems on building rooftops — summarizing the issues associated with implementing a solar project, backed by anecdotes from several case studies.
  • Combining on-site renewables with energy efficiency – reflecting the important concept that it’s typically cost-inefficient to supply electricity to a building with (usually higher-cost) renewable energy without first capturing many of the (usually lower-cost) energy reduction opportunities available from a variety of efficiency measures.
  • “Net zero” buildings – articulating a vision of building performance that requires extreme co-alignment and collaboration among all parties involved in the execution of a building:  the owner, the occupant (not always the same), the developer, the architect, the engineer, the general contractors and their subcontractors.
  • Financing of energy efficiency and renewable energy projects for buildings – providing an overview of the various lease and debt options that can be found in the marketplace.

Of course, it goes without saying that these are marketing pieces designed to promote JCI’s capabilities and offerings.  Even recognizing this bias, they are well-written, clear and concise on the germane issues facing building professionals in considering energy efficiency and renewable energy possibilities.  JCI’s library is a good addition to the resources available in the cleantech space.

Hyundai Making 2,000 Hydrogen Fuel Cell Electric Vehicles

Hyundai Tuscon ix 18k Hyundai Making 2,000 Hydrogen Fuel Cell Electric Vehicles

The most popular way to extend the range of an electric vehicle is to add a small gasoline engine coupled with a generator as done in the Chevrolet Volt plug-in hybrid. The most popular way to extend the range of an electric bus is to add a fuel cell that generates added electrons. During the Winter Olympics, 100,000 riders were transported up Whistler’s 12 percent grades on 20 hydrogen fuel cell electric buses. Now SUVs made by Hyundai-Kai, General Motors and Toyota are also testing Fuel Cell Electric Vehicles (FCEV).

So far, hydrogen vehicles have been following the adoption path of natural gas vehicles. They do well in specific fleet applications, but they have not been ready for consumers at competitive prices, complete with 100,000 mile warranties and a network of public fueling stations. Hyundai, Mercedes, Honda, Toyota, and General Motors are all working to make FCEV mainstream commercial success. Linde, Air Products, Praxair, Shell and others are installing more private and public stations.

When my wife and I drive our Nissan Leaf, we charge the lithium battery with electricity and go. We do not suffer energy loses of using electricity to electrolyze water creating hydrogen and further energy loses of converting hydrogen back to electricity. The LEAF with its 60 to 100 mile practical range meets 80 percent of our needs, but not 100 percent. If we were driving hundreds of miles daily, or on a heavy bus driven 300 miles daily up and down hills, we would need a clean way to extend the range of our electric vehicle. Hydrogen fuel cells extend the range of electric vehicles. Neither battery-electric or fuel-cell vehicles provide 100 percent of the solution. We need a portfolio of solutions to achieve fuel economy, energy independence, and clean air.

Mercedes Fuel Cell Vehicles Drive 18,000 Miles Around the Globe

After 70 days of driving and more than 18,000 miles, three B-Class F-Cell’s circled the globe and returned home to Stuttgart becoming the first round-the-world drive with fuel-cell vehicles. The three F-CELL hydrogen-powered cars crossed through 14 countries on four continents. Even a no-fault accident in Kazakhstan was unable to stop the B-Class F-CELL.

Now Mercedes is putting 200 of these F-CELL hatchbacks into fleets for daily use. I was impressed with my test drive. The F-CELLs smooth ride and quite cruising reminded me of driving my LEAF. The Mercedes deployment of 200 FCEV follows GM’s successful Project Driveway where 100 Equinox FCEV were driven for two-years.

“With the F-CELL World Drive we have shown, that the time for electric vehicles with fuel cell has come. Now the development of the infrastructure has to pick up speed,” said Dr. Dieter Zetsche, Chairman of the Board of Management and Head of Mercedes-Benz Cars. “For only an adequate number of hydrogen fueling stations enables car drivers to benefit from the advantages of this technology: high range, short refueling times, zero emissions.

So far, there are only approximately 200 fuel stations worldwide at which fuel cell vehicles can be refueled. According to expert calculations, a network of around 1,000 fixed fuel stations would be sufficient for basic nationwide coverage in Germany. The exclusive partner for hydrogen supply on the F-CELL World Drive was the Linde Group.

The World Drive vehicles drove not only in downtown areas, on country roads and lengthy stretches of highway, but also proved their capabilities driving on unfinished surfaces, for example on stages in Australia and China.

Hyundai’s Fuel Cell SUV with 400 mile range

Last week, I looked at Hyundai’s third generation Tucson ix FCEV and talked with some of their product engineers and managers. 48 of these 400-mile range electric vehicles are being put on the roads now. It’s cousin, the Kia Borrego has a 466 mile range. By the end of 2014, 2,000 of these vehicles will be in service in the United States, Europe, and Asia. By 2015, Hyundai has hopes that this roomy and fully-featured SUV can be priced as low as $40,000.

Hyundai is now driving the Tucson FCEV from San Francisco to New York, traveling 4,500 miles in less than 30 days. Fueling will be a Hyundai dealers where various industrial gas distributors will deliver compressed hydrogen tanks. Along the way, Hyundai Hope on Wheels will award $7.1 million to 71 children’s hospitals.

New battery-electric and plug-in hybrids have benefitted for the design progress and fleet tests of fuel cell vehicles. A Honda engineer told me that 75 percent of the parts had been eliminated. A Volkswagen manager told me that with volume manufacturing using vapor deposition equipment, over 90 percent of the platinum needed for fuel cell catalyst could be eliminated. A Hyundai research scientist told me of 76-percent range improvements in the latest Tucson FCEV.

The new Tucson ix stores 144 liters of hydrogen compressed to 700 bar. Energy storage includes a 100kW hydrogen PEM fuel cell integrated with 100kW supercapacitor and 21kW of lithium battery pack. The vehicle is propelled only by a 100kW induction electric motor.

McKinsey Report: Portfolio of Power-Trains for Europe

A report well worth reading is A portfolio of power-trains for Europe: a fact-based analysis. The study compares outcomes for Europe with 273 million vehicles by 2050 if they follow a path dominated by increasingly efficient internal combustion vehicles (ICE), or battery electric and plug-in hybrid, or 50 percent fuel cell. The report forecasts that the cost of all powertrains converge, benefitting from technology improvements and volume manufacturing learning curve. The Report states, “The cost of fuel cell systems is expected to decrease by 90% and component costs for BEVs by 80% by 2020, due to economies of scale and incremental improvements in technology…. The cost of hydrogen also reduces by 70% by 2025 due to higher utilization of the refueling infrastructure and economies of scale.”

The Report states, “Medium/larger cars with above-average driving distance account for 50% of all cars, and 75% of CO2 emissions. FCEVs are therefore an effective low-carbon solution for a large proportion of the car fleet. Beyond 2030, they have a TCO advantage over BEVs and PHEVs in the largest car segments.”

Pike Research Forecasts 2.8 Million Fuel Cell Vehicles by 2020

Pike Research forecasts that light duty FCVs will be commercialized by mid-decade.  According to the Pike Research “Fuel Cell Vehicles” cumulative sales of fuel cell cars and trucks will surpass 2.8 million vehicles globally by 2020.

Pike identifies the best contenders for light-duty fuel cell commercialization to be Daimler (Mercedes), Honda, Toyota, Hyundai-Kia, and GM. “Fuel cell vehicles have been an elusive goal for the automotive industry,” says industry analyst Dave Hurst, “but they are on the verge of commercial reality.  With substantial support from the largest automakers, the pressure is on gas companies and governments to make sure that hydrogen fueling stations are available to support this emerging market.”

Pike Research forecasts that fuel cell transit buses will be at the vanguard of the FCV movement, with sales growing at a compound annual growth rate of 31.7% by 2015. Fuel cell light vehicles will be commercially launched in 2014 predicts Pike, and their sales will reach almost 670,000 vehicles per year by 2020.

Pike Research forecasts that Western Europe will be the leading region for FCV sales with a 37% share of the world market, followed closely by Asia Pacific with 36%.  FCV sales in North America will represent approximately 25% of global sales during the period from 2014 to 2020.  The cleantech market intelligence firm anticipates that FCV revenues will reach $23.9 billion annually by 2020.

Renewable Hydrogen

Energy security advocates like the fact that hydrogen is already produced from many sources. Often the most cost effective way is to reform natural gas (CH4) into hydrogen. In Oakland, AC Transit uses the city’s natural gas pipeline to reform CH4 into hydrogen at the facility where they fuel 12 hydrogen buses.

For the Winter Olympics, hydrogen was produced by electrolysis where H2O separates hydrogen and oxygen. Canada used hydropower for the electrolysis. Waste hydrogen from a chemical plant was also used. In Torrance, a Shell station delivers hydrogen from the pipeline that runs from Torrance to Carson. In that area, pipelined hydrogen is mainly used in refining oil into high-octane gasoline and low-sulfur diesel.

Orange County Sanitation District opened world’s first to source hydrogen from wastewater. The Fountain Valley wastewater facility uses waste gas from water treatment and fuel cell technology to create electricity, heat, and hydrogen—a tri-generation system. As the stationary fuel cell generates heat and 250kW of power for facility use, it also produces 100kg of hydrogen for the vehicle fueling station operated by Air Products.

On October 13, the California Hydrogen Business Council will host an all day meeting about renewable hydrogen. The author of this article, John Addison, will present a scenario to reduce transportation greenhouse gas emissions by 80 percent. The presentation will include a portfolio of solutions including transit-oriented development, reduction of vehicle miles travel, hydrogen and electric vehicles. 80/2050 Scenario Paper

Clean Coal Technology Is Making Venture Investors Money

One of my friends, John Moore. the CEO of Acorn Energy (NASDAQ:ACFN), recently sold off their rapidly growing CoaLogix investment for a quick return. I caught up with John to get the story.

So John, who the hell is Acorn Energy anyways?

Acorn Energy (NASDAQ:ACFN) is the Sun Studios of the energy sector. We have created companies and categories like Demand Response (Comverge-(NASDAQ:COMV)) and the less well known SCR catalyst regeneration market through CoaLogix which we just sold to Energy Capital Partners for $101 million yesterday.

Why did you invest in this deal in the first place?

We look for companies that have created a new category in energy technology but have yet to be recognized. We look for specialty businesses that help the energy industry “get more out of what it’s already got”. Given that coal provides 48% of our electricity in the USA and 75% of China’s output we felt it was an area where we could make an impact. At ACFN we believe in the Power Law which states a small change in a big number is still a big number. In CoaLogix we found a proven technology where the regulations were in place, a great management team and a market near an inflection point. Acorn provided the capital and management really executed. We created the world’s largest catalyst regeneration business with 75% US share and 40% of the SCR capacity under long term contracts. We exited with a 43% IRR after three years and ten months.

Who does Coalogix compete with for these products, and what made you comfortable originally that they could take market share?

CoaLogix competes with new catalyst producers like Hitachi. The company’s value proposition was that we regenerate the catalyst at half the cost of new catalyst. The competition with the new catalyst producers was driven by the new functionality that they were adding to the new generations of catalyst. The key risk factor in the investment was whether we could keep up the net value proposition to the end users versus the new catalyst offering. Management changed the industry by forming an alliance with the largest US catalyst producer, Cormatech- a joint venture between Corning and Mitsubishi and we both prospered.

I thought “clean coal” was dead as an investment category?

There have been some notable flops in the clean coal business like coal benefication and coal gasification deals. What these failed investments have in common is unproven technology and business models that require massive investment to achieve commodity margins at scale. I would refer readers to your insightful blog post on Jane Capital’s rules on energy technology investing.

How did this exit come together?

China passed NOx regulations as part of their new five year plan. We visited China in September 2010 and discovered the new NOx regulations were going to require $6 Billion of catalyst to be installed and there was going to be a really big market for regeneration. We decided that CoaLogix’s epic opportunity was China and management needed a sponsor with a lot of resources and contacts to repeat the company’s success in China. We hired UBS to lead the process and they found the perfect partner, Energy Capital Partners which manages $7 Billion in capital. They did such thorough due diligence on the company that in the end I think they knew the company and the management team better than we did.

So this is Acorn’s second big hit after Comverge?

Yes. We exited most of our stake in Comverge after the Goldman Sachs led secondary at a $600 million valuation or $29 per share. The CoaLogix ransaction was our second successful transaction with EnerTech Capital. They have incredible domain knowledge and initially sourced the CoaLogix opportunity but were between funds. We invited them in after we acquired the company and they added a lot of value. I get by with a little help from my friends.

What are the metrics on this deal? How much was Acorn in it for and when? How much did the business grow during that time? And what was the exit multiple for Acorn?

Acorn bought CoaLogix for $9.6 million in November 2007. We invested an additional $8.6 million to build a new plant and our gross sale proceeds were $61.9 million for a 43% IRR or 3.4 times our investment.

So you guys do both minority and controlling investments?

We have done both but we only make minority investments with an eye to buying a majority stake if we like management. One of the lessons I have learned is management must have a really large economic opportunity and that means ACFN owning 85% and management around 15%. We provide a balance sheet, some big picture guidance and contacts and stay out of the way and let management execute.

You’re essentially an evergreen fund, so what are you going to do with the proceeds?

We plan to reinvest in our three operating businesses; DSIT the leading underwater security company, GridSense a very promising smart grid distribution optimization provider and US Seismic a pioneer in the emerging field of 4D seismic for the oil and gas industry. We feel that each of these three businesses have huge potential and are capital light so we can stick with them longer than CoaLogix or Comverge. Of course, we always have our eyes open for new opportunities that benefit from “economies of connection” amd solve a major energy industry pain point.

One more thing John, your comment “We look for specialty businesses that help the energy industry “get more out of what it’s already got”. This is very articulate thesis that certainly isn’t typical for venture investors, can you expound a bit on what you mean by that?

Great entrepreneurs look for a fulcrum from which to leverage their ideas to market. The number one use of energy is the extraction, refining and distribution of energy. The existing energy systems waste and scale is the fulcrum. The entrepreneur’s new technology or system is the lever. I have been astonished by how many cleantech entrepreneurs want to try to reinvent our huge scaled energy systems from scratch missing the opportunity to use the fulcrum. Even the biggest venture funds don’t have the activation energy necessary to radically change our energy supply. The smartest play available is to make the existing infrastructure smarter. Last year I wrote a short book “The Hidden Cleantech Revolution” to investigate the really important changes that were happening to the “other 97%” of our energy supply that nobody was talking about. I would invite your readers to e-mail my assistant at jvoisin@acornenergy.com for a free copy.

Keystone Cops

As mentioned in a prior posting, I recently traveled to Canada as part of a delegation convened by the Chicago Council on Global Affairs to consider energy trade issues of importance to Canada and the U.S. – especially in the Midwest.

The second stop on our journey, after a day and a half in Manitoba to gain a deeper appreciation of Manitoba Hydro, was northern Alberta, which has become the epicenter of one of the largest energy opportunities and simultaneously one of the most controversial environmental issues facing those of us in the cleantech sector.

Of course, I’m writing about the Athabasca oil sands, one of the largest reserves of commercially-recoverable oil (using currently-available practices) on the planet. 

The main attraction of the Alberta leg of our trip was a visit to the operations of Suncor Energy (TSX: SU), one of the largest producers operating in the Athabasca, about 20 miles north of the boom-town of Fort McMurray.

Several indisputable facts are important to lay out concerning the oil sands in Alberta before addressing the issues at hand.

  • The Athabasca oil sands resource is massive:  an estimated 1.7 trillion barrels theoretical maximum, or about 170 billion barrels assuming a 10% recovery rate.  The only larger set of proven oil reserves in the world is in Saudi Arabia.  Significant portions of these reserves are economically-recoverable at oil prices of $75/bbl or even lower.
  • Current production levels from the Alberta oil sands are about 1.5 million barrels per day, mainly using surface mining techniques.  Surface mining imposes significant environmental scars upon the landscape for many years.  Most future production growth will be from parts of the resource that are deeper underground and thus not amenable to surface mining approaches, and will be accessed by in-situ recovery methods such as steam-assisted gravity drainage (SAGD) that impose far less environmental impact.
  • Because the resource is inferior in innate quality to so-called “sweet crudes” of West Texas that have become the oil industry benchmark, significant energetic inputs are required to “upgrade” recovered oil sands into a grade of oil that can flow easily through pipelines and be processed by refineries into transportation fuels.  As a result of all the extra pre-refining efforts, the carbon footprint of using fuels from oil sands is higher than from other sources around the world.  According to a report by IHS CERA, producing a gallon of gasoline or diesel from oil sands unleashes about 40-70% more greenhouse gases than for the average fuel burned in the U.S.
  • The U.S. consumes over twenty percent of annual world oil production, yet has only a couple percent of the world’s proven reserves.  Consequently, the U.S. needs to import about 40 percent of its day-to-day oil requirements.  Canada is the largest source of U.S. oil imports, mainly oil sands production from Alberta.  Without the Alberta oil sands, the U.S. would surely need to import much more oil from Saudi Arabia and other Middle Eastern countries.
  • World oil demand is on the order of 85 million barrels per day, and lacking an widely-scaled substitute for oil to supply ever-increasing transportation demands, almost every observer of the energy markets expects that number to only increase.  This is due to the rise of the developing world into 20th and 21st Century standards of living. 
  • Nowhere is this more true than China.  Given rapid economic expansion on its huge population and industrial base, China is the largest driver of future growth in global oil demand.  Sometime in the next 20 years, China will likely overtake the U.S. in world oil consumption.  Yet, like the U.S., China has only a tiny share of the world’s oil endowment.  As a result, China is mobilizing around the world to acquire rights to oil resources – and is especially active in investing in Alberta oil sands projects.
  • Between potential Chinese and American demands, private investment in the oil sands is exploding.  About $10 billion per year is pouring into the Athabasca oil sands, with an aim to boost production to 3.5 million barrels per year by 2020. 
  • Two major pipeline construction projects are proposed to correspond to the increased planned production in Alberta:  to refineries in the U.S. via an expansion of the Keystone Pipeline System called Keystone XL being proposed by TransCanada (TSX: TRP), and to the British Columbia coast via the Northern Gateway Pipeline under development by Enbridge (NYSE: ENB),  for shipment by tankers plying the Pacific Ocean to refineries in Asia and America.

And herein lies the rub:  the Keystone XL project has quickly become one of the most contentious environmental battlegrounds in recent memory.  The issue has become a national cause.  Over the past few weeks, protesters have camped out in front of the White House demanding that the U.S. to deny construction of Keystone XL.  The New York Times has come out squarely against Keystone XL.

Environmental advocates hope to stop Keystone XL for three primary reasons:

  1. Climate change.  James Hansen of NASA, one of the pre-eminent voices leading the charge for addressing the threat of climate change, has said that it’s “game over for our planet” if the Keystone XL pipeline is developed.  A good part of this claim arises from the fatter carbon footprint associated with oil sands relative to other sources of oil:  that using oil sands for our transportation fuels will imperil the climate more rapidly.  Directionally, this is correct.  However, while oil sands may have a 40-70% larger carbon footprint on a “wells-to-pump” basis, on the more relevant “wells-to-wheels” basis, oil sands is “only” 5-15% worse.  Far and away, most of the greenhouse gases associated with petroleum use are associated with actually burning the fuel in our vehicles, not in producing and refining it.  In other words, improving auto efficiencies by 20% is more important to climate change than the choice of oil sands vs. other crudes.
  2. Environmental degradation.  No question, mining oil sands is ugly and damaging, as documented by such observers at Andrew Nikiforuk.  But, the boreal forests of northern Alberta, while beautiful, are massive in their extent and mining operations operations are taking only an infinitesimal fraction of it.  Reclamation techniques being developed by Canmet (Canada’s national energy R&D institute) and employed by operators like Suncor are cause for cautious optimism that the land can be remediated back to a healthy ecosystem, albeit with a several-decade time horizon.  And, in-situ SAGD operations will likely comprise a significant share of the incremental production from the Athabasca, imposing much less negative impact on the local environment.  Finally, we should note that there are lots of no-less-ugly and no-less-damaging operations in strip mining for coal in the Powder River Basin and mountaintop removal in Appalachia — both of which are happening right here in the U.S. of A., and both of which entail a fuel that is higher-carbon than oil and can more easily be displaced by many other more-environmentally friendly substitutes.  
  3. Risk of oil spills.  Between the Exxon Valdez spill in Alaska, the BP Deepwater Horizon fiasco in the Gulf of Mexico, and this year’s Yellowstone River leak, oil companies don’t have anywhere near a perfect record at ensuring oil doesn’t end up in pristine places where it shouldn’t be.  Governor Dave Heinemen of Nebraska, a Republican whose party is more than occasionally associated with the “drill, baby, drill” mantra, has come out in opposition to Keystone XL for fear that any leaks will taint the Ogallala Aquifer.  However, it should be noted that oil pipelines already cross the aquifer — and these older lines are probably more subject to failure than any newer ones that might be built.

While I am sympathetic to these concerns at a conceptual level, I frankly think they’re a bit overblown.  Accordingly, I don’t think that stopping or even delaying Keystone XL will yield much environmental benefit. 

As noted above, the Alberta oil sands are vast and economic to produce — and continued robust demand in the world oil markets, especially from China, will drive these resources to be developed promptly.  If the resources are developed promptly, then all of the climate change and environmental degradation that protesters hope to avoid by blocking Keystone XL will happen anyway. 

OK, granted, if Keystone XL isn’t built, there wouldn’t be any additional oil spills in the Midwestern Great Plains of the U.S. (beyond what already might occur from the existing oil pipeline network).  However, the size of Northern Gateway would probably be expanded to scoop up the volumes that would have gone south to the U.S. via Keystone XL — and there would be at least an equivalent if not greater risk of spills along the Northern Gateway pipeline route across the Canadian Rockies or in the Pacific Ocean or along the pristine B.C. coastline.

In other words, if the opposition succeeds and the U.S. doesn’t allow Keystone XL to happen, it probably won’t end up helping the environment anyway.

Instead, all it would do is piss off our friendly neighbor:  note that Alberta has enacted the only binding carbon emission reduction program in North America, and standing in Canadian shoes for a moment, it would be more than a little annoying to be scolded by Americans for climate malfeasance when the U.S. hasn’t done jack-squat on the issue.

In addition, denying Keystone XL would only cause the U.S. to import more oil from other less-friendly and farther-flung places — perhaps at higher net out-of-pocket costs to American consumers to boot.  Although I suspect the estimated impacts are overblown, there would also be the foregone economic development benefits to the U.S. associated with constructing and operating the Keystone XL pipeline if it’s installed.

So, notwithstanding the good intentions of those who are against Keystone XL, I respectfully can’t agree with their position.  As I recently wrote to my good friend Stefanie Spear, publisher of EcoWatch Ohio, even if I don’t like the facts, I can’t dismiss them.

I can’t see any way around concluding this:  since it’s probably about a wash from an environmental standpoint, the U.S. should allow Keystone XL, so that we can at least obtain the economic and geopolitical benefits that trading with our preferred partner Canada (instead of, say, Venezuela or Saudi Arabia or Nigeria) affords.

Based on recent statements by Secretary of Energy Chu and insider rumors about the leanings of the State Department (which is the lead agency in reviewing the Keystone XL proposal), I suspect the Obama Administration will grant approvals for Keystone XL, because they sense the calculus of these tradeoffs.  A final decision is due by the end of 2011.

The problem is not Keystone XL.  Our problem is actually quite simple, although completely different:  we — especially the profligate U.S., but the whole world as well — need to stop using anywhere as much oil as we do. 

Only when we reduce the consumption of oil in a meaningful way will we meaningfully reduce emissions from oil burning, environmental degradation associated with oil recovery, and risk of oil spills in transportation.  

Arresting the development of a new oil pipeline is merely re-arranging the deck chairs on the Titanic.

We need to kick our “addiction to oil”, as acknowledged by President Bush way back in January 2006, not worry about where the oil is coming from.  Only when we start weaning ourselves off oil will projects like these not happen — because they won’t provide good financial returns as demand for the stuff falls. 

Getting off oil in a big way very quickly would only happen if there were  large/rapid shifts in non-petroleum (electric, natural gas or biofuel) vehicle penetration, massive expansion of public transportation, and/or major reconfiguration of 21st Century  live/work/shop/play patterns.

I would rather the protesters turn their energy towards rerouting the pipeline around the Ogallala — perhaps the most well-grounded concern.  

Otherwise, I would like to see more outrage directed towards the more useful aim of actions to reduce oil demand for transportation — higher fuel taxes, carbon emission reduction requirements, public transportation, smart growth zoning, R&D programs for biofuels and batteries.  And, towards reducing coal demand for power generation too.

Without major declines in world oil demand, stopping Keystone XL really won’t matter much from an environmental standpoint, no matter how much James Hansen and others wail.  The protesters can win at best a symbolic victory.

 

9/11 – A Call for Energy Security

Book excerpt from Save Gas, Save the Planet

My ninth trip to teach a workshop at Two World Trade Center never happened because of the great tragedy 9/11. For years Sun Microsystems, my former employer and now part of Oracle, had invited me to conduct a series of workshops about technology and strategy. Much of the Wall Street ran on Sun servers, Java applications, and Sun network technology. Reliability, performance, and the ability to recover from disaster were reasons that New York continued to run after the disaster.  Sun’s tagline was reality – “The Network is the Computer.”

On September 11, 2001, thanks to heroes like Avel Villanueva the hundreds of people working for Sun Microsystems in Two World Trade Center all quickly evacuated the building and survived. When Avel saw the damage and fire at One World Trade Center, he paged everyone at Sun to leave Two World Trade Center as quickly, “Please, with calmness, go to the nearest exit. This is not a drill. Get out.” He repeated this from the reception area several times. Only after several pages and inspecting the vast 25th and 26th floors did Avel personally leave. Three minutes later the second plane hit Two World Trade Center.

Although it must have been difficult to continue working after such a tragedy, the people at Sun understood that New York depended on their ability to keep working. Within 24 hours almost all Sun employees were doing their jobs at other Sun locations, homes, even nearby cafes. Sun effectively used its own networking technology with an iWork program that enables employees to work at home, at an office near their home, or be highly productive anywhere with a mobile device and wireless network connection.

Flexwork is one way that we are now more secure. The vital work of millions can continue even if a building cannot be accessed or part of a city is closed. Wireless and Web 2 enable collaboration, communication, and knowledge work to continue anytime and anywhere. People are most effective working some days at one location, other times at home, others at a customer or supplier location. We can take advantage of the new flexible workplace solutions to annually save millions of wasted hours and billions of dollars of fuel. Flexible Work Report

Energy Security Action

Both 9/11 and the massive oil spill destruction of our oceans and coastal cities remind us that we need to be less dependent on oil. Ninety-five percent of our transportation fuel is from oil that is refined into gasoline, diesel, and jet fuel. We pay for that oil by transferring trillions of our dollars to countries hostile to the United States.

Americans are taking action to reduce our dependency on oil. They are driving less by taking advantage of employer programs such as flexwork, ride sharing, and public transportation. When driving, it is increasingly with high mileage and electric cars like the Nissan Leaf and Chevy Volt that use little or no gasoline. Two car households are buying fuel efficient cars and increasingly keeping their gas guzzlers parked.

These cars will be fueled by electricity produced in America. Electric cars will primarily be smart charged at night and take advantage of our high growth of wind, solar, and other renewable energy.  We have enough wind to power the nation including transportation. We have enough solar. Yes, it will take time, money, high-voltage lines to major markets, and added jobs. Green is producing green. While many areas of our economy are currently suffering, renewable energy and energy efficiency are growing rapidly creating jobs and corporate profits.

Real security requires more than airport checks, less foreign oil, and cleaner transportation. Real security starts with the commitment to give our children a better world. Future generations deserve nourishing food, clean water, and protection from disease. Global warming has now put over one billion at risk of not getting enough water and food. Glaciers are disappearing. Water systems are stressed as oceans rise and water tables deplete. Hurricanes attack our coastal cities with increased intensity. Draughts, heat waves, and wild fires weaken our ability to grow food at affordable prices.

Yes, there are those in Congress who are chanting “drill, drill, drill,” but we cannot end our addiction to oil with more oil. Elected to represent their people, not special interests, these legislators threaten to stop funding renewable energy unless Big Oil can drill anywhere it pleases.

In Mr. Friedman’s Hot, Flat, and Crowded he recalls a Chinese proverb, “When the wind changes direction, there are those who build walls and those who build windmills.” America can renew its world leadership with innovative solutions to our energy crisis. We can lead in wind power, solar, geothermal, building efficiency, materials that are lighter and stronger, zero emission cars, and zero emission cities. From information technology to clean technology, from flexwork to sustainable communities, let’s build windmills not walls.

We can be inspired by heroes like Avel Villanueva who got everyone to safety. We can also celebrate the millions of ordinary heroes who are building a more secure future for our children by living a more sustainable life.

Copyright © John Addison. Permission to reproduce with preservation of this copyright notice and link to original article. John Addison is the author of Save Gas, Save the Planet.

Solar Eclipse

The sections of the blogosphere concerned with energy topics were abuzz last week with the news that Solyndra had filed for bankruptcy.  

Until recently one of the poster children for cleantech, Solyndra’s apparent demise was all the more notable due to its blue chip investor roster and its prominent selection by the Department of Energy in March 2009 for a $535 million loan guarantee.  Indeed, President Obama visited Solyndra’s facilities only 16 months ago touting the company as a shining example of cleantech innovation, job-creation, and wealth-creation.

Solyndra follows closely in the footsteps of fellow solar module manufacturer Evergreen (NASDAQ: ESLR) to receive substantial government financial support…and fail not long thereafter.

So many commentators have written about Solyndra in the last few days that I’m tempted to look at another topic for this week’s posting, but I feel compelled somehow to chip in my $0.02.

The first penny:  what is going on in the solar business that’s causing companies like these to crash and burn?  Isn’t the solar business booming? 

Yes, the solar business continues to grow rapidly.  One of the reasons that the industry is growing is that the price of solar energy is falling, becoming more economically attractive for more potential customers.  This is a good thing.  However, it does put pressure on the companies that make products for the solar marketplace.  Simply put, like most forms of energy, solar energy is generally a commodity, where lower-cost producers win and high-cost producers either have to improve or die.

By its own account, Solyndra was not the lowest-cost producer:  its product was inherently more expensive, but promised other advantages that would reduce costs elsewhere in the total installed solar energy system.  It’s quite possible that these theoretical advantages never really materialized, as most implementers of solar projects – while still with plenty of room for innovation – have begun to standardize their business practices (e.g., sales, marketing, procurement, installation) relative to conventional PV modules, most of which are available from other suppliers at a lower cost.  In other words, Solyndra’s proposed solution did not neatly “fit” the marketplace in which it was competing.

While it is indeed good news that the price of solar modules has been falling, it’s nevertheless inescapable to point out that this trend is driven heavily by increasing penetration of supply from Chinese PV module manufacturers, capitalizing on their low cost structures and immense financial/policy support from the central government – neither of which are readily available to U.S. PV module innovators.  In other words, for newbies in the PV industry like Solyndra to succeed, they are going to have to produce a module at a cost comparable to those sourced from China – yet with higher wages and taxes, more stringent rules for doing business (e.g., environmental regulations), and less government support. 

If you say it can’t be done, you’d be wrong:  U.S. based First Solar (NASDAQ: FSLR) is widely-recognized as the leader in today’s global PV market, with a very low cost structure due to several proprietary inventions.  The Chinese and new entrants from the U.S. alike will have to aim at First Solar as its target.  At the same time, First Solar will have to hustle to maintain its competitive edge in the dog-eat-dog solar business.

My second cent:  the hue-and-cry from many pundits that Solyndra’s collapse is evidence of faulty energy policy from the government – not just the loan guarantee program and Solyndra’s selection, but all of the efforts to promote clean energy technologies like solar energy.

There’s no question that the government is not great at picking winners.  In my view, it’s far more effective for the government to put in place market-based mechanisms with overarching goals, and then let the private sector players compete fairly.

The problem is, when it comes to the energy markets, those who oppose subsidies for renewable energy like the loan guarantee program are almost unanimously also opposed to any market-based mechanism that aims to internalize the cost of emissions associated with fossil fuel energy so as to make the playing field for clean energy closer to fair. 

(As an aside, these same opponents also tend to oppose the removal of subsidies for fossil fuel energy.  And, these same opponents also tend to deny that anthropogenic climate change is likely to be happening.  And, these same opponents also tend to oppose a variety of environmental regulations.  And, these same opponents are often led by sources of information that derive financial gain from fossil fuel interests.  A lot of generalizations in the above passage, and while generalizations are often dangerous and there are undoubtedly some exceptions, I feel comfortable in making these statements on the whole.)

Lacking any political will to try and structure the energy marketplace in the most logical manner to drive towards clean energy solutions, the government thus resorts to incremental, tactical, second-best (actually, probably closer to nth-best) policy mechanisms like the loan guarantee program.

As a venture capitalist, the loan guarantee program does very little to spawn technology innovation and support start-ups of interest to me.  Rather, the program is aimed to provide some security to lenders to offer debt for scaling up companies whose technologies are essentially proven.  The loan guarantee program mitigates execution risk in the growth or expansion stage, or in early project deployment.  Typically, the assets against which the loans are made (e.g., manufacturing equipment) have substantial residual value. 

Thus, as Solyndra goes through the liquidation process, the private sector lenders behind the company are likely to get some of their money back – and the hit to the taxpayer will probably end up being less than the face value of $535 million, although my fellow CleanTech Blog colleague Neal Dikeman is not too optimistic.  Time will tell.

As for concerns that Solyndra was improperly or inappropriately selected by the Obama Administration to receive the loan guarantee in the first place, this is an issue worth further investigation.  Improprieties wouldn’t surprise me, as I’ve sensed improprieties of similar flavors in various governmental operations and civic affairs over the past few years.  In my opinion, the U.S. has become a country in which government – federal, state and local – has become increasingly “pay-to-play”. 

If Solyndra turns out to be yet another example, it would bother me…but I would also add two further comments: 

1) I would be willing to bet a considerable sum that the list of companies in conventional energy that have recently received public sector finance benefits unfairly or unethically is very long (as “big energy” has lots of money and they throw it around very liberally in the lobbying arena), and

2) Let’s implement market-based mechanisms in the energy sector to discourage emissions, so that we can get rid of targeted subsidy programs where undue influence in government selection can occur.

OMG Solyndra’s Dead! How Much is This Going to Cost Whom?

Yup.  Solyndra’s going BK.  Taking with it US government loans to the tune of $10 for every taxpaying household in the country and $500K or so for every job it created for one year.

But seriously, raise your hand if you DIDN’T see this coming.  Like, OK, those with their hand’s raised, you are no longer allowed to comment on this blog.  This deal’s been close to a running joke among the cleantech cynics for a couple of years now.

We wrote about this before.  The theory on the product was that rooftop install issues and low wind resistance were so important that they should be coating CIGS on a circle and encapsulating it in the most weird and costly way possible (or maybe because they liked the cattle-grate aesthetic), and then demanding a premium price for it.  Keep in mind, it was roughly the same amount of CIGS material they would have used if they had done a similiar size flat plate module.

Um, only their PR people and the original inventor must have ever really believed that product design was a good idea to sink a billion and change dollars into (the “and change” part by itself being well larger than the average venture fund OR the average venture backed exit).

Open question, does this go down as the largest venture capital bust in history?  Like a billion in equity? Certainly bigger than Webvan.

List of venture firms that look like they came close to or exceeded the typical contractual or house investment concentration limits in this deal for at least one of their funds, and/or had to cross-over investments in later funds to keep up.

  • Rockport
  • CMEA
  • Virgin Green Fund
  • Masdar
  • Redpoint
  • USVP

List of hedge funds/family offices that provided most of the cash to cram down those VCs in the last few of rounds including anchoring the equity for the DOE Loan Guarantee and replacing the the $300 mm IPO with $250 mm private equity deal along the way.

  • Artis
  • Argonaut (George Kaiser family)
  • Madrone (Walton family)

List of those government entities dumb enough to fund a half a billion dollar senior secured loan that went up in smoke within what, a year?  Going poof that fast is usually the lender’s mistake, not the borrower’s.

  • DOE – AKA the guys who created jobs at the price of like $500K per job created – for like 12 months?

My guess as to actual recoveries for the DOE:

It’s specialty equipment in a commodity business and they let the entire manufacturing staff go.  Nobody’s restarting this thing.

  • So you’re looking at tops very low 7 figures for the patents, maybe, I haven’t done a review to see whether there is anything of interest outside of their own product defense.
  • The c. $216 mm (as of Jan 2010)  in equipment gets sold off for tops 5-10 cents on the dollar for other uses, parts, or scrap.  And I think I recall they owned one of their chunks of land and building right? The S-1 has land in it as $32 mm, plus building construction in process.
  • And a few million in inventory and A/R gets recovered at 5-10 cents and 20-30 cents on the dollar.
  • Then, do they have a saleable customer pipeline or development pipeline of contracts that could be sold, or do all those simply evaporate?  Probably the latter, but some possibility here.
  • MAYBE the government gets back 10-20 cents on the dollar tops, assuming that building and land sell off well.  Everyone else?  Nada.  🙁

Part of me wants to say I told you so, and part of me is literally cringing from the fallout this could  have on the cleantech investment sector and a lot of smart, dedicated people I know who were involved in this company.  My one nagging fear is that this is just the first of many other multi-hundred of million dollar cleantech venture deals are in the pipeline to go straight to zero.

 

IPOs and Bankruptcies and Cleantech “Hot or Not”

Last night while watching Office reruns, I realized I’d been remiss, and a lot’s had been happening in the public equities end of the cleantech sector.  Not to mention yesterday’s billion dollar BK broiler announcement by the one-time Next Greatest Thing, Solyndra.

So, with my usual aplomb, I thought I’d simply peanut gallery what’s “Hot or Not” in cleantech.

 

Bled Out on the Operating Table

Solyndra – BK (and not the burger kind). Well, we wrote about it a lot, and nobody believes us.  But bad product is bad product, and high cost is high cost, regardless of how much money you throw at it.  So who’s going to calculate the impact on the DOE loan guarantee program’s projected loan losses? Not.

Evergreen Solar (NASDAQ:ESLR)  – 🙁  And it was such cool technology, too.  I’m very sorry to see this one go.  At one point some years back it was the savior deal of the sector.  But we are in a race to cost down or die. Not.

 

Filed, Not Yet Hell for Leather

Enphase – I’m very very interested in seeing these guys make it.   Lots of growth.  Very thin margins so far.  Product costs looks miserably high.  Need to cost down like a banshee running from the Bill Murray.  But you’ve got to love the category killer potential and how fast they’ve executed.  First microinverter guy to manufacturing maturity eats the others like oatmeal (sloppy but eaten nonetheless). Hot.

Silver Spring – Hmmmmmmmmh.  Home run potential, but what’s the term?  Very high beta?  These contracts are massive, far strung, very very tight margin.  They’ve shown they can get the growth.  But with long lead time sticky contracts, it’s about managing costs during slippage and change-orders well, and it’s a very competitive business.  One blown contract gives back all the profits on the last 8.  But, give kudos for getting this far and making it to be a real player.  Now we’ll see if you can execute. Hot.

Luca Technologies – Hello?  Are you serious?  I read this S-1 cover to cover.  I had my technologist read it and go find their patents.  We love this area.  The concept of microbes for in situ is old as can be, but very very interesting..  The challenge is always cost and performance (not really a new nutrient mix?).  How do you get the bugs, nutrients, whatever you’re doing, down the hole and into the formation far enough and cheap and effectively enough to make a difference.  But in the entire S-1 and website, there is not a single technology description, fact, proof point or ANYTHING that suggests they’ve actually cracked the real nut.  The few numbers they do mention are not even to the ho-hum level.  Did a real investment banker really sign up to this?  Who wrote this?  Their PR guy with a liberal arts studies degree?  Really?  This smacks of a “trust us I’m Jesus and daddy needs an exit” deal.  In reality, probably interesting, but still very very very very very very very early science project.   Not.

 

We have a whole collection of biofuels stocks to discuss now.

Solazyme (NASDAQ:SZYM) – half of its 52 week, less than a buck over its low. Not.

Kior (NASDAQ:KIOR) – Somebody correct me, but did the filings really indicate Khosla put money IN to this IPO?  And it got off at low end of the range even after that? From one of their filings: “In conjunction with the Issuer’s IPO, an entity affiliated with the Reporting Persons purchased 1,250,000 shares of Class A common stock, resulting in an increase in beneficial ownership by the Reporting Persons by that amount. The
purchase was made at the initial public offering price of $15.00 per share, for an aggregate purchase price of $18,750,000. The source of funds used to purchase the shares of Class A common stock was Khosla’s personal assets.” At least it’s money where it’s mouth is.  Not.

Amyris (NASDAQ:AMRS) – 58% of its 52 week high, 20% over it’s low. Not.

Gevo (NASDAQ:GEVO) – 40% of its 52 week high, c. 20% off it’s low. Not.

Codexis (NASDAQ:CDXS) – 55% of its 52 week high, c. 20% off it’s lows. Not.

I’d comment on the fundamentals of each one, but I don’t want you to think I’m depressed.  Oh, by the way.  Did I ever tell you the story about the cleantech sector’s magically changing cellulosic biofuels business plans to “cellulosic bio-anything-but-fuels” plans as people finally woke up and realized how tough using lousy feedstocks and high cost processes in a commodities market actually is.  Of course, careful you don’t change from targeting fuels to making feedstock for dirt cheap who would want to be in that business commodity chemicals or specialty chemicals with a global aggregate gross margin market less than your cash on balance sheet.

And a Few Tidbits

Advanced Energy (NASDAQ: AEIS) – I still really like this company.  Somebody’s going to own inverters.  And the numbers look very interesting.  Very. Need to dig deeper. Hot.

American Superconductor (NASDAQ:AMSC) – Ummm.  Do you believe their wind business ever recovers?  One customer.  Buying a competitor with one customer.  Both in China.  Customer doesn’t like single supplier risk where the supplier makes high margins?  What did you think was going to happen?  Ugly ugly story.  Very real possibility that they trade on a log curve to straight zero.  Some chance of sunshine, but I’d cancel the picnic. Not.

A123 (NASDAQ:AONE) – I really really really want this to work.  But what’s the path to profits?  Not feeling it. Not.

Tesla (NASDAQ:TSLA) –  “Don’t worry, the NEXT car will fix my company’s fundamental problems” – quote attributed to the Tesla CEO who replaces the next Tesla CEO. Not.

Active Power (NASDAQ: ACPW) – Hey, did anyone notice these guys are growing revenues AND margins?  A long haul, but keep it up!  Need careful consideration before I’d jump into flywheels, but someone deserves a ton of credit as coach of the year.  Hot.

Satcon (NASDAQ:SATC) – Hammered, but still a market leader.  Got to think about this one – it’s historically traded for more than it’s fundamentals justified, but with PV Powered and Xantrex snapped up, hard to imagine they stay independent for long. Hot.

SunPower (NASDAQ:SPWR)  – Wow.  Total. No guts no glory.  Highest cost producer, shall we call it the “performance queen”.  I do like this bet by Total, but it takes guts.  But when a market leader’s stock’s been hammered that far down somebody’s got to move and Total did . . .  Whether an individual investor can play is another story. Hot.

Ascent Solar (NASDAQ:ASTI) – Holy star solar batman!  These guys can sell ice to eskimos are have always been great R&D guys.  Still maybe the highest cost CIGS process known to astronauts.  I like these guys, but I’m not sure more cash fixes anything. Not.

Solon – What does “New US operational strategy” mean?  It means solar is a game of scale and execution.  Not.