Cleantech Blog

Monday, January 14, 2008

Is Environmentalism Compatible with Capitalism?

by Richard T. Stuebi

Perhaps the pivotal challenge facing the environmental community is resolving the apparent conflict between the need to reduce emissions and the widely-held desire for continuing economic growth.

This issue came directly to the fore in reading a recent Business Week article entitled "Little Green Lies", profiling how the green initiatives of Aspen Skiing Company were often bumping into, and in fact prevented by, commercial realities of the business.

I was particularly provoked by the reader comments to the article. One respondent said that the contents of the article did not surprise him because (in his view) reduced consumption is ultimately the only environmental solution, which means reduced travel and reduced skiing, which runs against the profit motive of Aspen Skiing Company. This posting confirmed for another reader that (in his view) environmentalists are inherently anti-capitalism, viewing capitalism as the evil force that has led to climate change and other environmental ills.

To quote Rodney King, "can't we all get along?" The answer, I think, is yes -- and the path for squaring the circle is to note that capitalism is not to be confused with materialism or consumerism.

Capitalism is a social system that provides clear price signals and unfettered ability to undertake transactions, thereby enabling economic actors to make individual profit/utility-maximizing decisions, which in turn promotes efficient allocation of capital, maximizes liberty of citizens and businesses, and facilitates private wealth-creation.

We aspire to free-market capitalism in the United States, and we come pretty close to achieving it, closer than most countries in the world. And, because we are very capitalistic, it is easy to make the leap that American consumerism is inextricably a co-product of capitalism. It is not.

For instance, look at the leaders on the list of The Economist's rankings of national economic competitiveness. Sure, the U.S. is well above average. But the top two countries on the list are Denmark and Finland -- countries that, unlike the U.S., are not known for their excessive materialism. It is also noteworthy that Denmark is arguably the world leader in actually tackling climate change head-on by minimizing emissions through the mass-adoption of renewable energy and energy efficiency.

Capitalism and environmentalism can be reconciled -- theoretically, at least -- once energy price signals more accurately reflect their environmental costs. Right now, each unit of fossil fuel burned generates greenhouse gas emissions, which have a societal cost, but the consumer faces no burden in their wallet associated with this societal cost.

It is because energy prices do not currently include their full environmental costs that Aspen Skiing (and other companies) can't increase their profitability by pursuing as many green initiatives as they would philosophically like to do. If energy prices were to fully reflect all environmental costs, then the capitalist system would be freed to work its magic in motivating capital and behavioral shifts in the economy to significantly reduce emissions.

Alas, here's the dilemma: many environmentalists have qualms about letting markets work to reduce emissions, and most free-marketer capitalists are leery of policymakers adding environmental externality factors (a euphemism for "taxes") to energy prices. Unless this bridge can be gapped, we've got trouble.

Oh, yes, customers in Denmark and Finland face much higher energy prices (especially for transportation fuels), including much higher energy taxes, than we do here in the U.S. While Danes and Finns don't perhaps live la vida loca like Americans do, neither do they seem to be collapsing in existential angst or economic depression. The question for us Americans is: do we have the courage to elect leaders that would put us on a deliberate/planned march towards higher energy prices?

A first step for we Americans to make that shift is to better appreciate that reduction of consumption to preserve our planet is not necessarily anti-capitalist, but rather anti-materialism. Because, as the renowned Jared Diamond recently argued in a compelling New York Times oped, it is excessive human consumption of resources that is at the root of continued viability for life on Earth.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Labels: cleantech, energy, environment, green tech, investment

Tuesday, October 23, 2007

Australia the untapped market - new report on Australian Cleantech investment activity

by Nick Bruse

A new report co-authored by the Cleantech Network and Cleantech Ventures will be released today that details the PE & VC investment occuring in Australian cleantech companies.

At the launch breakfast this morning we heard from Jan Dekker (CV) and Anastasia O'Rourke (CN) present the key findings of the study. I've summarised some of these below, but you can download the full report from the Cleantech Ventures website.

Key findings

A$540m of venture capital dollars invested from 1999-2007
174 rounds in 75 companies
Around 3% of total VC invested
66 IPOs between 1974-2006 and 24 in 2005-06 alone

The Cleantech space in Australia is becoming more and more interesting as international and domestic investors are realising that Australian cleantech investment opportunities are relatively untapped, compared with the rest of the world.

Key drivers that are seeing a growth in the sector in Australia are:

commodity boom increasing economic activity
technology readiness from research institutions
environmental pressures including water shortages and climate change impacts
increasing policy push as a result of upcoming election
strong media interest in the sector
increasing capital availability

However there still remains some challenges for Australian Cleantech including:

lack of early stage capital
more technology transfer to business required from Australian University and Research institutions
more corporate venture funds and company investment & engagement required
stronger policy particularly around Mandatory Renewable Energy Targets, emissions trading and Kyoto
better analyst coverage of listed companies

By way of reference Cleantech Ventures has screened around 450 companies and made 11 investments via its CEGT fund over the last 4 years. In October this year Cleantech Ventures announced it has completed the first close of its new Cleantech Australia Fund.

The fund's first closing of $50 million is made up of $20 million provided through the Australian government's Innovation Investment Fund (IIF) program and $30 million from VicSuper, a superannuation fund committed to sustainability.

Article posted from The Cleantech Show

Nick Bruse is runs Strike Consulting, a growth venture consultancy specialising in the cleantech sector and hosts The Cleantech Show, a weekly podcast of interviews with leaders involved in clean technology research, entrepreneurship, commentary and investment.

Labels: Australia, cleantech, Cleantech Blog, energy, green tech, investment, private equity, report, venture capital

Wednesday, September 19, 2007

Al Gore opens FEX SIM launch - dedicated cleantech stock market

by Nick Bruse

Yesturday I had the pleasure of being present when Al Gore opened the new FEX-SIM sustainability and cleantech stock exchange in Sydney. Here’s a wrap up.

The exchange is the creation of Brian Price, whom I interviewed recently on the cleantech show during which we discussed the FEX-SIM in detail. You can listen to the show here if you didn’t catch it earlier.

The launch has been covered in a AAP news article to a degree particularly about the FEX-SIM, if you want a few more details at a glance the FEX website has a press release.

Much of what Mr Gore had to say was about the worlds past experiences and success in dealing with the global problem of chloroflurocarbons (CFCs) and ozone layer depletion, a future where in 25 years we may no longer have an artic sea ice in summer, and the near future and how select countries and companies are showing the way by moving quickly to deal with climate change.

He highlighted that both in Australia and in the US we are seeing significant movement amongst the state legislators and governments in driving emissions reduction targets and signing onto the Kyoto protocol limits at a state and city level. In the US he stated that 600 cities and 12 states are in the process of have done this already. In Australia state governments have moved quickly also to push an emissions trading and reduction goals.

In fact he went so far as to say that activities and the speed of change in industry, investment and policy in Australia may well allow it to regain a leadership position in this issue if it continues on this path.

He highlighted during question time that we do face significant challenges when it comes to issues of nuclear proliferation based around nuclear energy as a solution to climate problems. He highlighted that historically all cases where nuclear material has found its way into weapons program in countries have been found to be associated with nuclear energy programs.

An innocent question was asked by a young 10 year old student, there as a result of winning a school competition, which was “If you were elected to be the president of the united states in 2008, what would you do to deal with climate change.”

Mr Gore’s response was “Bless your heart” with a lot of laughter in the room, followed by, “I’m not running for president… but… if I was in that situation I would look at abolishing employment taxes and instead place taxes on pollution.” He said it was ridiculous that we live in a world where we are happy to penalise employment but not penalise pollution [including emissions]

I had the opportunity to pose a question myself, and asked Mr Gore if over the last year since he was in Australia had he come up with a dinner party ‘Zinger’ response sceptics of climate change, as posed by Andrew Denton in an interview on Enough Rope in September 2006, given we still need to move more quickly.

His response was no he didn’t have the zinger yet to convince climate sceptics but said that the challenge with climate change is “This this change is hard… really hard.. in fact its at the limits of what we as a society can do.” He went on to say that for laggards and sceptics at this stage of the process, we must lead by example, help bring them along, as the world is changing under their feet and its tough.

I’ll leave you with the quote from the end of his presentation, an old African quote, which sums up our future pretty well.

“If you want to go quickly, go alone. If you want to go far, go together” The problem Al Gore highlighted is that we need to go quickly and far, so we must devote ourselves close to completely to this challenge.

If you want to catch the first 5 mins of his 20 minute presentation you can catch it on the FEX website

Cheers
Nick

Article posted from The Cleantech Show

Labels: Al Gore, Australia, cleantech, Cleantech Blog, energy, green tech, investment, launch, stock market

Sunday, July 15, 2007

Booming in Cleantech

by Nick Bruse

We've been hearing a lot about whether or whether not there is a cleantech boom on at the moment. A new report by Topline Strategy Group weighs in with evidence that no boom is occuring in VC investments. An article on red herring's website summarises the findings from the report, namely:

Only a small fraction of the dollars VCs poured into U.S.-based companies—about $1.3 billion out of a total of $25 billion—went to cleantech investments between April 2006 and March 2007, according to Boston-based consulting firm Topline Strategy Group.

Out of the 3,400 deals examined, about 120 were made in cleantech ventures; in addition, the amount of money invested from quarter to quarter remained flat.

And the numbers show that mainstream firms are still playing catch up. Only three of the top 25 high tech and life science venture capital firms have made three or more investments in cleantech over the last year [...] By contrast, clean tech-focused boutique firms topped the list of VC firms with the greatest number of cleantech deals [...] all had invested in seven or more cleantechcompanies.

On the other hand in the stock market of late we have seen a surge in the prices of some solar companies recently - see Ann-Marie Flemings earlier article - and last year saw surges in biofuels stocks.

When I was thinking about booms I wanted to explore the idea further of picks and shovels sellers being the big winners in these periods. For those that aren't familiar with this term, it basically a statement that companies selling picks and shovels achieve this providing the tools that allow the more volatile companies in the space will use to make or break their fortunes.

If we go back to an article I found written prior to the dot com bust it servers as a basis for a discussion on these issues. The intriguing article is by a journalist from Asiaweek magazine back in 2000 before the dot-com bubble burst. He slams the idea that picks and shovels were the winners in the market at the time stating. "If you follow the crowd investing in producers of picks and shovels, you will likely become the owner of property in a ghost town." If you read through the article no doubt you'll find some amusement in his predictions - as hindsight usually provides. But I think its worthwhile to consider taking a moment to think back to that era and determine whether its the same sentiment and mood that we are seeing today in the energy space.

In a recent podcast with Tom Konrad from Alt Energy Stocks on the The Cleantech Show we discuss his opinions on what is happening in the cleantech / clean energy sector. From his point of view there's three drivers that are pushing investment into the sector - climate change awareness, peak oil and energy security. We brought up the issue of Picks and Shovels in the clean energy business during the show and I think we decided that perhaps the areas where thats really going to occur is in the energy efficiency sector, where some of the most crucial yet unsexy technologies exist to make a short term impact on carbon emissions.

Now back in the Internet boom days from my point of view the drivers were mainly consumerism, entertainment and interaction based. I worked for a large telecoms provider at the time and much of the hype was driven by the possibility of a new range of services to business and consumers, and too a great extent driven by companies themselves hoping to sell more ATM switches. Ultimately, the expectations outstripped much of what the technology could provide and unsustainable investment resulted in a crash which collapsed the whole commercial basis on which the boom relied.

The drivers we see now in the cleantech sector i believe are more physical and real in nature that those of the internet boom, having said that we only have to see the effect that each new report on oil or climate change has on the share prices of companies in this sector.

The other aspect that i think we have to be concerned of in this sector is the sources of information driving the belief cycle of what is really going to happen with energy markets. For many people understanding the reality of what is occuring in the main drivers listed before is all too hard. Most people would struggle to digest the stern report or IPCC report in its details . So there is a reliance on the sound bytes of reporting in the media, and from professional analysts on the sector. Or from reading opinions on blogs - an information source that wasn't around in the dotcom boom.

Ultimately my gut is telling me what we will see is a series of surges and stability as we go through the growing pains of understanding how best to deal with climate change issues in the coming years and hopefully that we get enough scares in the short term to force us to derive alternatives to fill the gap in energy supply when the oil runs out. OR we really will run into a dire state of affairs and its all hands of humanity on deck and those who managed to make a return while the good times lasted have somewhere to spend their money.

Ultimately I think we probably need to spend less time worried about the money we can make, but worry about how our money can make a difference quickly.

Nick Bruse runs Strike Consulting, a growth venture consultancy specialising in the cleantech sector and hosts the cleantech show, a weekly podcast of interviews with leaders involved in clean technology research, entrepreneurship, commentary and investment.

Labels: alternative energy, booms, clean energy, cleantech, Cleantech Blog, energy, green tech, greentech, investment, shares, state of the world, stocks

Thursday, May 03, 2007

Cleantech Venture Capital - Still Rising

As part of our ongoing series on stories on investment in the cleantech sector, we had a chance to discuss the sector with one of the venture capitalists at Emerald Technology Ventures.

Scott MacDonald is an Investment Director with Emerald Technology Ventures, a global leader in cleantech venture capital. Founded in 2000 under the name SAM Private Equity, Emerald is a pioneer in this rapidly emerging sector and is focused on innovative technologies in energy, materials and water. With offices in Zurich, Switzerland and Montreal, Canada, Emerald manages three venture capital funds and two venture capital portfolio mandates totaling over US$380 million. Scott currently serves as Chairman of RuggedCom and as a Director of Solicore and SoftSwitching Technologies. Prior to joining SAM, Scott held the position of Managing Director at OPG Ventures Inc., the venture capital subsidiary of Ontario Power Generation. Previous to OPG Ventures, Scott worked for ACF Equity, an early-stage venture capital company focused on investing in information technology companies. Scott graduated with a Bachelors degree from McMaster University and an MBA from Dalhousie University. He is a member of the North American Advisory Committee of the CleanTech Venture Network.

I know a bit about the history of SAM and Emerald Technology Ventures, and as one of the oldest cross-border investment groups in the cleantech area, I am very curious to get the Emerald Technology take on a number of issues. So we put to Scott a few thoughts and questions to get their take:

Emerald sponsored the San Francisco GreenVest 2007 conference I am chairing in June, and you are speaking there – can you share a few of your insights on the future of the cleantech area as an investment asset class?

I think we are in the early days but there is certainly an element of notoriety that the sector has attracted over the past 12 months with scientists, politicians and venerable VCs claiming action is required now to save the planet from global warming. A reputable and experienced LP in the venture asset class told me just last week that every generalist fund they speak with mentions an initative in cleantech. I think the great generalist funds will invest in the sector (as you know a few already are) and they will likely be successful. The specialist funds like Emerald will continue to map out and invest in innovating technologies because of our technical expertise and experience. Based on a number of successes exits to date in our first funds (Evergreen, Schmack Biogas, Pemeas), the specialization strategy seems to be working well. A really exciting development is that we are starting to see repeat entrepreneurs. Cleantech entrepreneurs that have successfully exited and are looking to try it again – and we couldn’t be happier. This was a key factor in the growth of the IT sector in the late 80s and 90s.

And can you fill me in a bit on the ins and outs of the recent fund history – the mandates with CDP and Ontario Power, your fund raise last year, and the subsequent MBO to form Emerald?

In 2000, SAM Group (Sustainable Asset Management), a leading asset management company specializing in sustainability investments and headquartered in Zurich, launched SAM Private Equity as its venture capital arm. That same year SAM Private Equity closed the SAM Sustainability Private Equity Fund and the SAM Private Equity Energy Fund with a combined EUR 90 million in commitments from leading institutions and strategic corporations. Both of these first funds are fully invested. In 2004, SAM Private Equity was awarded the portfolio management mandate from la Caisse de Dépot et Placement du Québec (CDP), a large Canadian-based pension fund, to manage its direct energy technology venture capital portfolio. Following the awarding of this mandate, SAM Private Equity increased its North American presence with two former members of the CDP team and established a North American office in Montreal, Quebec. In 2005, SAM Private Equity was awarded its second portfolio management mandate from Ontario Power Generation, a large Canadian electric utility, to manage its direct energy technology venture capital portfolio. To further strengthen its North American investment focus, two members of the former venture capital arm of Ontario Power also joined the team.

In March we announced the final close of our latest cleantech focused venture fund with commitments of EUR 135 million (US$180 million). We are going through a name change but the fund will be renamed Emerald Technology Ventures Fund II. Strong investor demand helped us exceed our original target for the new fund of EUR 100 million. Investors in the new fund are leading investment companies, financial institutions and multinational corporations from around the globe including: GIMV - Belgium, Rabobank - Netherlands, Caisse de dépôt et placement du Québec - Canada, Axpo Holding - Switzerland, Springbridge Limited (Advised by Consensus Business Group – UK), Credit Suisse - Switzerland, Deere & Company - USA, DSM Venturing - Netherlands, The Dow Chemical Company - USA, KPC Energy Ventures, Inc. - Kuwait, Piper Jaffray Private Capital - USA, Suncor Energy Inc. - Canada, Unilever Corporate Ventures and Volvo Technology Transfer AB - Sweden.

I have to ask, the name change – Sustainable Asset Management was an old brand in the cleantech investment sector, why the name change to Emerald?

Following the buy-out we are a private independent VC manager now and as such can no longer use the SAM brand. The SAM brand is powerful but it also was the source of some market confusion for our venture capital division. It’s clear now that Emerald is an agile and independent global VC manger with in-house expertise in the cleantech sector focused on investing exclusively in the cleantech sector and we have a new fund to do deals.

How many deals have you done from the new fund, how much capital have you employed, and what are you expecting to do over the next 12- 24 months?

We have made three investments out of the new fund and are closing on two more which should be announced within the month. We have only announced two of the investments to date – Vaperma and Identec (details of each is on our web site) www.emerald-ventures.com
I would expect we will invest in about 6 portfolio companies in total this year. We like to invest between US$2 -5 million in the first round depending on the opportunity and the stage. Technology, market and management are what’s important to us – we will consider all stages. Well…if it’s just a conceptual idea on a bar napkin we need to know the entrepreneur has made himself and others very wealthy in the past (preferably us – back to the serial entrepreneur comment).

What’s your passion these days? What technologies are you focused on?

I think there is an incredible opportunity for new technologies to help upgrade the antiquated electricity grids in Europe and North America and to leap frog into the incredible build-out that is going on in countries like India and China. China last year built an average of five 300 megawatt electricity plants a week and energy consumption is expected to continue rising fast as China aims to quadruple the size of its economy by 2020. This means a lot of new grid infrastructure technology will be deployed. We have a number of portfolio companies in the “smart Grid” space and will continue to seek out investments in this space.

You’ve had a couple of recent exits in fuel cells – what fund were they from, and has that changed your appetite for similar technology areas in the future?

We have had recent exits in this area: Pemeas which we sold to BASF and Cellex which we sold to Plug. We still have an number of other FC investments in our portfolio that we are bullish on – Angstrom Power and PolyFuel. I would say we have learned a lot about the general FC market and understand many of the technology challenges and market adoption risks much better. We are still interested in the FC space – I would just say we are a more sophisticated FC investor now.

What does Emerald see as the main differences between investing in cleantech in Europe versus the US?

The topic of an article in itself but quickly: Deal structure, Corporate governance model, Company history (many family business in Europe), labour laws, language, proximity and access to stock exchanges which are more accommodating to VC backed companies (Frankfurt Prime Standard, AIM), valuations (typically more favourable than the US – comparable to Canada where we are also very active). The short answer is lots but both regions provide great opportunity to generate investor returns. Again or investment thesis is based on the fact that unlike IT, cleantech is a global business and as such, investment opportunities are not limited to Silicon Valley or any other specific geography. At Emerald Technology Ventures we have taken a distinctive approach to addressing the challenges associated with technology specialization and geographic diversity. Our approach includes having technically competent people in-house and locating our Partners and Technology Specialists in two of the most important Cleantech markets in the world: North America and Europe.

We have done a lot of writing at Cleantech Blog on topics including ethanol, solar – so I’d like to get your 1 sentence rapid fire take on a couple of always topical cleantech investment debates:
- Thin film vs. Conventional PV - Thin film if you have deep pockets and patience
- Solar concentrators vs. Flat Panel - No comment, yet.
- Cellulosic vs. Corn Ethanol - Science project vs. commodity. I’m a VC…science project always wins.
- Cleantech vs. Greentech - Make great products, build great businesses and provide great returns to investors (and hopefully help out our world along the way) and no one will care what you call it.

Thanks Scott. Especially with those last comments, you've provided some good food for thought. The venture capital sector is built around high risk, high reward, and you guys are certainly in the mix. We continue to keep our fingers crossed that cleantech sector can deliver on the rewards side. You can find more on Emerald at www.emerald-ventures.com. And don't forget to visit GreenVest on June 25 in San Francisco.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Author for Inside Greentech, and a Contributing Editor to Alt Energy Stocks.

Labels: cleantech, Cleantech Blog, energy, green, green tech, greentech, investment, private equity, Silicon Valley, venture capital

Thursday, March 01, 2007

The Trouble with Water

Previously posted on Inside Greentech.

There was an active discussion around water at the recent Cleantech Forum in San Francisco. As there always is.

Everyone knows the old joke, applied to just about everything at one time or another, that runs: "hydrogen is the fuel of the future... and always will be," or "Brazil is the superpower of the future, and always will be."

Well, I wonder if that applies to water.

Will water always remain the "problem of the future," and not of the present? Despite the maxim that "water is the next oil," nobody ever seems to put their money where their mouth is in the water sector.

The basic story goes like this:

The water industry is huge, mostly public owned by entities that have no money for the (pick your number of) billions in upgrades needed
Population is growing every year
Population is increasing most rapidly in driest regions
Water is cheap, so no one conserves it (think about that statement as an economist and ask yourself if we really have a problem yet)
Water is even more important than energy as a "basic right," so no government will let its population run short.

Therefore, investing in water technology (desalination, membranes, remediation, purification, metering, etc.) to create solutions to the coming problem is a good idea.

But it never happens. The investment community just doesn't walk the walk when it comes to water. Why is that?

Some thoughts on why:

Motivation. The water industry, while huge, is not widely privatized and is very fragmented. It's not been heavily "technology" driven to date, and has proven to be even more cumbersome than the electric utility market to break new technologies into. Investor owned utilities, which are now a very large portion of the electric and gas utility market, are just a few percentage points of the water market. So very few of the potential customers for technology are big enough and profit driven enough to care.
Maturity. The technologies these water companies use is relatively old. Membrane technology used in reverse osmosis and more efficient valves and even smart control systems are not new ideas. And a lot of potential "breakthroughs" have been beat out of the industry already. So unless price radically changes - as in several orders of magnitude, it's likely that the technology we've got is "good enough" or at least hard to beat.
Price. Water is cheap (see above). Read: nobody's bearing any real pain today in most of the industrialized world. I'm not. I don't even get a water bill. I'll cut my morning Starbucks before I reduce my water usage. It's a bigger hit on my pocketbook. In pockets of the market, this may be changing (we do read about water crises in Australia from time to time, ultra clean water needed for semiconductor processes and additional water demand for a particular housing development in Southern California), but it is really hard to get a return on R&D when your customer is measured in "pockets" as opposed to "markets."
Solar, ethanol and carbon. Three years ago, water was the buzz of the venture conferences. Money looked like it might flow. Then the solar and ethanol markets took off, carbon trading got traction and climate change grabbed the headlines and the political mindshare (including mandates, rebates, and subsidies). Water - both the problems and the solutions - fell out of vogue.
Size and capital intensity. Like energy projects, water projects are often really big and expensive. Scaling up ALWAYS has more risk than one thinks it does. Like in energy, one just doesn't invest in a pilot for a new technology lightly. And just because one or two projects with a given technology are running does not a successful launch make. When 30 or 40 are running for 5 to 10 years, then you've broken through.

So I guess it remains to be seen if water is the problem of the future - or if it really is the next big thing. And it definitely remains to be seen if anyone can make big money investing in new water technologies and solutions.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog and a Contributing Editor to Alt Energy Stocks.

Labels: alternative energy, cleantech, Cleantech Blog, energy, green tech, greentech, investment, venture capital, water