New Optimism For a Cleantech Future

If you’ve not been paying much attention to cleantech in the last little while, it’s time to sit up and take notice.

Because post-Solyndra, cleantech has been quietly gaining momentum.

We had the chance to take a close look at the fundamentals of cleantech over the last two months in co-authoring a new (and free!) 38-page research report in conjunction with Oakland, Calif.-based advocacy group As You Sow and the Responsible Endowments Coalition of Brooklyn, New York.

Titled Cleantech Redefined: Why the next wave of cleantech infrastructure, technology and services will thrive in the twenty first century, the paper analyzes the most recent investment research available across a number of industries and major impact areas. It identifies key drivers and market size projections for various cleantech categories. It looks at examples of products and technologies currently on the market. Finally, it highlights a handful of large, mid and small cap firms and funds as possible points of entry for investors within each industry.

The paper does a good job of introducing cleantech and its significance (e.g. even only being a relatively new investment theme, cleantech is still—even today after a downturn—attracting nearly a quarter of global venture capital available.) It re-emphasizes cleantech’s multi-trillion dollar individual addressable markets of power, water, agriculture, transportation and others. And it restates the significance of cleantech’s drivers, and that they’re not going away any time soon.

But to me, one of the most interesting sections of the report compares the cleantech wave to other technology booms of the last 50 years, like the dot com boom, the networking craze, biotech, the PC and the microprocessor. We found a number of parallels and a number of reasons for optimism when you compare the cycles. After 20 years in technology, personally, the more I looked at the data, the more it felt like I’d seen this movie before.

For instance, the downturn in venture capital: Venture capital often spikes early in emerging categories, later to be replaced with more traditional levels of investment and other sources of capital as industries develop. It happened in the Internet era, and this transition has begun in cleantech as shown below; venture capital is playing less of a leading role in driving cutting edge technology, as it’s being being augmented by corporate investors and other sources of funds. More detail in our report.

Venture capital spikes in Internet and cleantech

Actual and estimated venture capital spending in Internet and cleantech. Source: Matthew Nordan

There’s another relevant curve, below, that looks a lot like the one above. We hypothesized in an analysis this summer that cleantech had bottomed out on the Gartner hype cycle. We make the more detailed case in our report that cleantech, as in every one of the previous waves I just mentioned, had experienced the same initial enthusiasm, the same frothiness, the same “irrational exuberance” as Alan Greenspan put it, that these other technologies did as expectations initially exceeded reality.

As the Gartner model below illustrates, in every one of these previous waves, there was a correction, and a gradual equalization of expectations and execution. Our analysis, detailed in our report, is that cleantech is now starting to climb out of what Gartner calls the “trough of disillusionment” and up the “slope of enlightenment” (how very Zen!)

Gartner hype cycle

Hype cycle of expectations over time related to cleantech. Source: Gartner

And cleantech IS climbing out. If you look at broad-based cleantech funds as a proxy for the cleantech theme, there’s been solid growth the last few months. Yes, cleantech returns have been generally poor for investors the last few years. But there HAVE been bright spots in certain sub-sectors such as clean energy generation, solar services and transportation. The lift from high cleantech fliers like SolarCity (NASDAQ: SCTY) and Tesla Motors (NASDAQ: TSA) is pulling up the rest of the category, as shown in the performance of the PowerShares Cleantech Portfolio fund, a mix of public stocks from across the cleantech definition.

Powershares PZD fund performance

PowerShares Cleantech Portfolio fund (PZD) performance, 2007 to 2013. Source: Google Finance

Another reason our report finds optimism for the cleantech space is in looking at cleantech’s various industries through the lens of the technology adoption lifecycle model, a curve popularized by the marketing strategy firm Regis McKenna in Palo Alto, California, where I served as a senior consultant in the mid 90s. I wrote in 2011 about the significance of this model to cleantech, and our new report echoes and expands on this analysis. If the vast majority of clean technologies, services and infrastructure plays have yet to cross the chasm, it means risk and expense getting there, but it also means massively larger market adoption on the other side.

In the widely accepted technology adoption lifecycle model, a market gap exists between early adopters of new technologies and the majority of consumers. This gap is especially treacherous for companies that develop disruptive technologies, as they force a significant change to the markets they target. Only companies nimble enough to transition from the early adopter market (consumers motivated by purchasing the latest technologies for competitive benefit) to the early majority of the vastly larger mainstream market (which prefers to buy established technology) are successful.

Chasm model

The technology adoption lifecycle and chasm model, Regis McKenna. Source: Joe M. Bohlen, George M. Beal and Everett M. Rogers

Different clean technologies have faced their mainstream adoption chasms at different times. For example, wind and solar energy power generation have already bridged the gap. They are now widely understood and increasingly deployed by renewable energy decision makers at power companies, and by individual businesses and homeowners. Algae fuel, for example, is on the far left side of the chart—exciting but yet to scale.

The adoption chasm of new technologies can differ substantially in magnitude. Many cleantech products have been quietly moving the needle on efficiency and waste reduction without fundamentally altering their markets. Lighting is a good example. The transition from incandescent to fluorescents to light emitting diodes (LED) happened without dramatic market disruption. Consumers had a small technology curve to overcome, but the lighting market still requires the purchase of light bulbs. We expect a significant segment of the cleantech transition will happen in this way, with cost and efficiency driving marginal, but resource-significant product changes.

So, in all, our new report finds that cleantech is here, today, now. It observes that efficiency, one of the central tenets of cleantech, is now a theme of almost everything now made, and of how it’s designed and manufactured. Cleantech is becoming ubiquitous—from cheaper, more efficient lighting to advanced metering software. Cleantech in all of its forms is poised for even more rapid expansion, especially now that the largest companies in the world have discovered the opportunity and imperative of cost savings… and now that individual technologies are beginning to cross the chasm to mainstream adoption.

As our report concludes, we’re just at the beginning of this phenomenon called cleantech. The best and most exciting investment opportunities are yet to come.

This article was originally published here and is republished here by permission.

Cleantech to “Backtrack” in 2013?

Our firm, Kachan & Co., has just published its latest annual set of predictions for the cleantech sector for the year ahead.

To our analysis, 2013 is shaping up to be something of a year of backtracking for the cleantech industry, a year that calls into question some of its traditional leading indicators of health, and one that surfaces long term risk to such cleantech stalwarts as solar, wind and electric vehicles.

Do we think cleantech is finished? Not at all. But much like young Skywalker learned in Episode V, cleantech is about to find out that the Empire sometimes gets its revenge.

In brief, (click here for long version) our predictions include:

Cleantech venture investment to decline –  Expect worldwide cleantech venture capital investment in 2013 to decline even further than it did in 2012, never to return to the previous highs it achieved before the financial crisis of 2007-2008, we believe. Among the factors: the departure of many venture investors from the sector because of disappointing returns, poor policy support worldwide and a lag time in the pullback of equity and debt investment.

But this doesn’t mean the sky is falling in cleantech. Family offices, sovereign wealth and corporate capital are now having more significant roles, filling gaps where traditional VC has played in recent years. It’s a sign the sector has matured, we believe. Fewer VC cooks in the kitchen may indeed impede innovation, but deep pocketed corporate capital should help clean technologies that are already de-risked reach more meaningful levels of scale.

Long term risk emerges for solar and wind – The solar and wind markets suffer today from margin erosion, allegations of corruption, international trade impropriety and other challenges. In 2013, we think poor progress in grid-scale power storage technology will also start to put downward pressure on solar and wind growth figures. Prices per kilowatt hour are falling, yes, but the cost of flow batteries, molten salt, compressed air, pumped hydro, moving mass or other storage technology needs to be factored in to make intermittent clean energies reliable and available 24/7. When also considering continued progress in cleaner baseload power from new, emerging nuclear technologies, natural gas and cleaner coal power, the growth rates for solar and wind appear increasingly at risk.

Clean coal technologies gain respect – We predict 2013 will be the year a new set of technologies will emerge aimed at capturing particulate and CO2 emissions from coal fired power plants and help clean coal technologies begin to overcome their negative positioning. The barrier to capturing coal emissions has been cost and power plant output penalties. Our research has identified encouraging new technologies without such drawbacks, and we think the world will begin to see them in 2013. China is expected to target domination of the clean coal equipment market, like it does already in many other cleantech equipment categories.

The internal combustion engine strikes back, putting EVs at risk – Important innovations quietly taking place in internal combustion engines (ICE) could further delay the timing of an all-electric vehicle future, we think. In 2013, unheard-of fuel economy innovations in ICEs will enter the market, including novel new natural gas conversion and heat exchange retrofits of existing engines aimed at dramatically lessening fuel needs. Some of these technologies, when combined, claim to be able to reduce fuel costs by 90%. That could push out the timing of EV adoption.

Cleantech adoption in mining – Notoriously conservative mining companies and their shareholders are starting to realize that the capital expenses of new clean technologies can be offset by reduced operating costs and the potential for new revenues. In 2013, we predict more adoption of cleantech innovation in mining, in areas such as tailings remediation, membrane-based water purification, sensors and telematics, route optimization software intended to lower fuel and equipment maintenance costs, and low water and power hydrometallurgical and other novel processes for mineral separation.

Big ag steps up and cleans up – We estimate that 2013 will be the year the world’s leading agricultural companies embrace new innovation in significant ways. Expect accelerated corporate investment, strategic partnership and agricultural M&A in 2013, as agricultural leaders race to meet consumer demand for cleaner, greener ways of producing food, having weathered intense consumer GMO-related and other backlash.

Want more rationale & data? Read our predictions for cleantech/greentech in 2013 in their entirety.

Agree? Disagree? Weigh in on our original article here.

Cultivating Agricultural Cleantech

An expanding world population, coupled with increasing concerns about resource scarcity, land availability, biodiversity conservation and global warming is fostering interest in sustainable agriculture technologies.

Large companies and clean technology investors are focused on energy, and some are following water. Yet very few are tracking opportunities in breakthrough clean and green agricultural technology. And that suggests opportunity.

Certain innovations from a new crop of companies have the potential to expand yields, increase efficiencies, reduce waste and address concerns about toxicity, safety and the environment. There are innovative companies that are potentially poised for success across all categories of the taxonomy of agricultural cleantech—which Kachan & Co., having just published a major report on the subject, characterizes as follows:

Kachan agricultural cleantech taxonomy

Kachan & Co. agricultural cleantech taxonomy, a section of the larger Kachan cleantech taxonomy, which spans other sectors such as clean energy, transportation, water and others. Source: Kachan & Co. analysis.

In its new report on agricultural cleantech, Kachan uses the following criteria to differentiate cleantech developments from generic agricultural innovations:

  • improved efficiency of resource use
  • reduced ecological impact
  • smaller carbon footprint
  • sustained or enhanced profitability

Technologies which reduce the demand for water and chemical inputs are included as they reduce strain on the global water supply and reduce the impact on surrounding ecosystems via the introduction of foreign chemicals. Technologies which enhance the health and yield of crops and herds are included as these reduce waste from the industry and alleviate pressure to convert native land into agricultural fields. Innovations which reduce the carbon footprint of agriculture are included as they directly address the climate challenge we face today. Also included are land and resource management practices which decrease or eliminate nutrient drain and erosion of soils such that the land may sustain cultivable yields indefinitely. Focus in this definition is given to technologies which function at a commercial scale (as opposed to subsistence farming and hobby practices).

The following walks through the above taxonomy, offering definitions of each of the five main categories and profiles one leading company within each. The five companies profiled in this blog have either reached an exit (trade sale or IPO) or are simply compelling examples of the category in question. The full Kachan agricultural cleantech report goes through the taxonomy line by line and profiles a total of 57 companies.

Crop farming
Crop farming includes the cultivation of grains, fruits, vegetables, fiber crops, fuel crops and other plant varieties like mushrooms and fungi. This sector is of particular importance as cropland covers 12% of the earth’s ice-free land, and grain cultivation alone accounts for 50% of the world’s food supply (when supplies fed to livestock are considered).

Sustainability in crop farming focuses on increasing yields as well as improving resilience and persistence of crops. Greater yields are, and will continue to be, needed in order to feed the growing population with existing agricultural lands. Crop resilience describes the capacity of the plant to buffer shocks and stresses, which helps ensure food security in the face of climactic stresses. Persistence describes the ability of arable land to sustain a crop rotation indefinitely without diminishing yields.

Innovator Example: Plant Health Care
Plant Health Care (AIM:PHC) is best known for two natural crop amendments; Harpin and Myconate. Harpins are proteins produced by a variety of pathogens which cause plants to release cellular calcium and increase their metabolic rate. Photosynthesis and nutrient uptake rates rise, resulting in greater immunity and growth. Plant Health Care synthesizes Harpin proteins which have been shown to increase yield and shelf-life of certain crops. Harpin, discovered by Plant Health Care’s chief scientist, was a cover feature of Science Magazine. Myconate, a compound naturally secreted by drought resistant crops like red clover, promotes the colonization of plant roots with beneficial networks of fungi which work to increase the effective surface area of roots. Plant Health Care has developed a process to generate synthetic Myconate. Ultimately, the company claims, Myconate allows greater access to water and nutrient resources which has been shown to generate yield increases on the order of 9% for corn crops and 13% for soybeans.

Plant Health Care is headquartered in the USA with offices in the UK, Iberia, the Netherlands and Mexico. The management team has been involved in the agriculture industry for decades and retains the discoverer of Myconate as their chief scientist. The board of directors draws on similar experience in the agricultural and chemical industry with past endeavors at Arista and ICI. Long-term partnerships with Bayer CropScience, German Seed Technology, Syngenta and Monsanto, among others, have and continue to provide a secure revenue source alongside direct product sales. Plant Health Care continues to research new Harpin proteins which may have higher activity levels, applicability to different crops and elicit greater disease resistance.

Controlled environment agriculture
Just over half the world’s population currently resides in urban areas. This fraction is expected to rise over the coming decades, reaching 67% (~6 billion people) by the year 2050. Urbanization presents a myriad of challenges for the agricultural industry and introduces new environmental considerations associated with food production and distribution. One way of addressing these issues is by finding ways to cultivate food within city limits. Urban agriculture practices can take a variety of forms, from greenhouse farming to vertical farming in unused indoor spaces to rooftop gardens and so on. Urban agriculture can reduce risks associated with weather and spoilage. Indoor climates are predictable and controllable, thus droughts and cold snaps pose no threat. Shorter transport distances to markets reduce the fraction of food lost to spoilage and the carbon footprint of products. On top of the practical advantages of urban agriculture, society as a whole has a preference for local food. Research has indicated that citizens of developed countries are willing to pay a 15%-20% premium for local products.

Innovator Example: Urban Barns
Urban Barns (OTCQB: URBF.OB) claims its developments are best described as ‘cubic farming’. The company’s patent pending system is said to surpass the yield of top-of-the-line vertical farming developments several times over by making full use of the entire volume of an available space with no restrictions on floor plan or available height. The company asserts its system provides adequate growing conditions for leafy green vegetables in any building with standard climatic controls.

Urban Barns has been highlighted by experts on account of its impressive management team. The team has over 225 years of collective experience in the industry. Jack and Leo Benne (CEO and COO, respectively) have considerable experience in the area of controlled environment agriculture, Daniel Meikleham (Chairman and CFO) has had a forty year financial career with high profile multinational corporations, and Robyn Jackson (Vice president) has been a fresh food distribution entrepreneur for forty years. The technology has been implemented in North America and Puerto Rico with recent efforts to extend the business into the Middle-East.

Sustainable forestry
Forests provide a number of invaluable ecosystems services. They are hubs of biodiversity and play an integral role in global carbon and hydrological cycles. Timber is an inherently renewable resource, however proper management practices are paramount to sustaining the regenerative nature of forests. Sustainable forest management seeks to: maintain and enhance forest resources, promote the health and vitality of forest ecosystems, conserve biodiversity and ensure forest land retains its natural relation to soil and water systems. The ultimate goal is to retain the forest’s ability to support ecological, socio-economic and cultural functions beyond timber harvesting. Over the past three centuries, timber extraction has caused a net loss of 7 to 11 million km2¬¬ of forest land. An additional 2 million km2 have been converted to highly managed timber and oil palm plantations. The technologies outlined below represent new opportunities to reduce our impact on native forests and improve the sustainability of silviculture stands.

Innovator Example: Triton Logging
Triton Logging Inc. has developed a pair of devices which enable the collection of submerged forests from dam reservoirs. Harvesting these dead stands displaces live harvesting and impacts a previously disturbed ecosystem, resulting in a very low impact timber product. The SawFishTM is a remote controlled submarine equipped with a grapple and 55 inch chainsaw designed for deep reservoirs (>40m) where divers and surface mounted equipment cannot safely operate. Navigating via video, sonar and GPS, the SawFish can harvest a tree every three to five minutes (in good conditions), sending each one to the surface using reusable airbags. The SharcTM harvester is a barge mounted device with a telescopic boom and cutting head capable of harvesting timber up to 36.5m below the surface. The Sharc locates timber through sonar, remote cameras and GPS.

Triton is the only company to offer a mechanized means of collecting submerged timber at this scale and holds considerable competitive advantage. With 60,000 reservoirs globally, the company addresses a large market. Triton has operations in Canada, the USA, Ghana and a prospective project in Brazil. Triton’s Ghana project harvests odum, mahogany, ebony and a variety of other high demand tropical hardwoods from Volta Lake, the world’s largest man-made reservoir (350,000 hectares). The project is to be in full swing by 2013, harvesting 400,000m3 of wood each year. Licensing negotiations continue for developments in Brazil, where the company would profit from an estimated 300 million submerged trees. Revenue streams include eco-wood sales, inventory assessment, harvest concession development and logging services.

Animal Farming
Livestock operations present an increasingly important segment of the agricultural industry. Nations tend to increase their consumption of animal protein as they become more affluent. China, as an example, more than doubled its consumption of animal products during the 1990s. Over the next ten years, livestock is expected to provide 50% of agricultural output in value terms. Combining the land devoted to animal feed crops and pastureland, animal farming accounts for 75% of agricultural lands (3.73 billion hectares). Thirty-five percent of crop production globally is currently devoted to animal feed. Concentrated animal feeding operations (CAFOs) are becoming increasingly popular in the animal farming sector. CAFOs present unique challenges, most pressingly in the area of waste management.

Innovator Example: Livestock Water Recycling
Livestock Water Recycling (LWR) has developed a patented system that combines chemical and mechanical treatments to process manure and discharged water from CAFOs. The company claims that its technology will save operators 0.5 cents per gallon of manure produced, a substantial savings given that conventional handling costs currently sit at 1-1.5 cents per gallon. The system is also intended to address the pressing issue of manure storage. As illustrated in the following figure, the system converts animal wastes into a set of salable products, including concentrated liquid ammonium fertilizer, solid phosphorous fertilizer and potable water. The company claims that the system will save farmers nearly $10,000 for every million gallons of manure generated before profits from the sale or use of generated fertilizers. LWR estimates the market value of fertilizer product generated by each million gallons of manure at $12,500. The LWR system is said to be robust and fully automated, enabling indefinite operation with little more than routine maintenance. LWR expects a 20% annual return on investment from the system.

Livestock Water Recycling has a well-rounded team with experience in chemical engineering, waste water treatment, biological science, business development, industrial design and marketing. The company has had past success remediating contaminated aquifer sites throughout North America, working on projects related to pipeline spills and railway sites. LWR is fully integrated, addressing all matters from initial design to follow up and maintenance. In this way it plans to protect its proprietary process from copy-cat operations. The company is currently backed by AVAC investments and has earned an F.X. Aherne Prize for Innovative Pork Production, a Top-10 New Products award at the World Agricultural Expo and an Emerald Award for Environmental Excellence. The company has completed extensive testing of the system and says it is currently installing systems for customers at both dairy and hog operations in North America. LWR claims to have international inquiries and plans, in future, to extend its focus to areas including China, Korea, Europe, and Russia.

Seafood currently provides 17% of the world’s protein and over 25% of protein in low-income countries. Roughly half the fish entering the market come from aquaculture and half from fisheries. The aquaculture industry is said be growing at 8-10% per year, making it the fastest growing sector of agriculture. Aquaculture is widely recognized as having a pivotal role in fighting world hunger and promoting the sustainable acquisition of dietary protein. The impacts of commercial scale aquaculture are, however, poorly understood. Primary concerns surround the acquisition of fishmeal and the impact on supporting ecosystems. Sustainable growth in the aquaculture industry will require innovations that minimize ecosystem impacts from open ocean aquaculture operations and methods of providing adequate nutrition to growing fish stocks in a manner that enables maintenance of feed fish populations. Recently a number of developments have occurred that support integrated multi-tropic aquaculture (IMTA), which describes nested aquaculture systems that raise fin-fish in conjunction with mollusks and other species, mimicking a natural ecosystem and lessening the load on the supporting environment. While such developments may play an important role in increasing aquaculture sustainability and a number of fish farms, like Cooke Aquaculture, have taken up the practice, the technology itself is not saleable per se and so has not been included herein.

Innovator Example: Marrone Bio Innovations
Marrone Bio Innovations (MBI) produces natural products for pest management. The company’s Zequanox product has demonstrated 90% mortality rates for zebra and quagga mussels, invasive pest species originating in the Caspian and Black seas which wreak havoc on aquatic ecosystems in North America. Zequanox consists of dead cells of a particular micro-organism which contain a compound naturally lethal to the target species. The company claims that at proper dosages Zequanox is safe for fish, insects, crustaceans, plants, algae and even native mollusks. In September of 2012, the company was chosen as a 2012 Top 50 Water Company by the Artemis Project on the success of its Zequanox product.

Zequanox finds a large market in North America as zebra and quagga mussels are a burden not only to aquaculture operations but also to industrial operations, power generation facilities, irrigation systems, public infrastructure and recreational facilities. The company has extensive experience in natural pesticides. Pamela Marrone, the company’s CEO, also founded AgraQuest in 1995.

As the world’s population grows and developing nations become more affluent, increased agricultural output and protein production will be necessary to meet demands. Issues of land and water scarcity alongside concerns about climate change and ecosystem degradation require increased emphasis on sustainability in agriculture.

Consensus on the ideal form of sustainable agriculture has not been reached. There are those who support a mix of high yield, heavily managed lands interspersed with sections of land reserved as natural sanctuaries, and there are those who support an agro-ecology approach where lands are farmed in a less productive manner while retaining ecosystem services.

A variety of agricultural cleantech innovations are emerging in the areas of crop farming, urban agriculture, sustainable forestry, animal farming and aquaculture. Venture capitalists have expressed only modest but growing interest in the area of agricultural cleantech, and increased investment is expected as our understanding of what truly constitutes sustainable agriculture evolves.

Latest Agricultural Technology Innovation, published November 2012 by Kachan & Co., details agricultural cleantech trends and drivers and profiles 57 important clean agricultural technology companies worldwide. This article was originally published here. Reposted by permission.


A former managing director of the Cleantech Group, Dallas Kachan is now managing partner of Kachan & Co., a cleantech research and advisory firm that does business worldwide from San Francisco, Toronto and Vancouver. Kachan & Co. staff have been covering, publishing about and helping propel clean technology since 2006. Kachan & Co. offers cleantech research reports, consulting and other services that help accelerate its clients’ success in clean technology. Details at

Predictions For Cleantech In 2012

It’s December again (how did that happen!?) and our annual time for reflection here at Kachan & Co. So as we close out 2011, let’s look towards what the new year may have in store for cleantech.

There are eggshells across the sector for 2012. Global economic uncertainty in particular is leaving some skeptical about the chances for emerging clean technologies. And those who watch quarterly investment data, or who look only in a single geography (e.g. North America) may have seen troubling trends brewing this past year. But the true story, and the global outlook for the year ahead, is—as it always is—more complicated.

As you’ll read below, we predict a decline in worldwide cleantech venture capital investing in 2012. But as you’ll also read below, we believe the gap will be more than made up by infusions of corporate capital. And the exit environment, depending on who you are and where you list, still looks robust in 2012 for cleantech (it may not have felt so, but it was actually surprisingly robust in 2011, according to the data. See below.) All in all, if you’re a cleantech entrepreneur seeking capital, our advice is brush up that PowerPoint and work the system now… while there’s still a system to work.

Because, as we detail below, the largest risk, to cleantech and every sector in 2012 we believe, is the specter of precipitous global economic decline and the systemic changes it might bring. Details below.

Here are our predictions for cleantech in 2012:

Cleantech venture investment to decline
In the face of naysayers then forecasting a cleantech collapse, in our predictions this time last year, we called an increase in global cleantech venture investment in 2011. We were right. At this writing, total investment for the first three quarters of 2011 is already $6.876 billion, with the fourth quarter to report early in 2012. Given historical patterns (fourth quarters are almost always down from third quarters), we expect 2011 to close out at a total of ~$8.8 billion in venture capital invested into cleantech globally. That’d be the highest total in three years, and second only to the highest year on record: 2008.

cleantech 2012 predictions venture investment
Total 2011 investment is expected to show growth from 2009’s figures once the fourth quarter (dashed lines, estimated) is added. However Kachan predicts total venture investment in 2012 to decline from 2011’s total. Data: Cleantech Group

Yet in 2012, we expect global venture and investment into cleantech to fall. Not dramatically. But we expect cleantech venture in 2012 as measured by the data providers (i.e. companies like Dow Jones VentureSourceBloomberg New Energy Finance,PwC/NVCA MoneyTree, and Cleantech Group) to show its first decline in 2012 following the recovery from the financial crash of 2008. Our reasoning? There are factors we expect will continue to contribute to the health of the cleantech sector, but they feel outweighed by factors that concern us. Both sets below:

On one hand: What we expect to contribute to growth in cleantech investment in 2012

  • China gets a hold on its economic turbulence – For five years now in our annual predictions, both here at Kachan and when I was a managing director of the Cleantech Group, we foretold the rise of China as cleantech juggernaut. Yet, now with China having become the largest market for and leading vendor of cleantech products and services by all metrics that matter, and now receiving a larger percentage of global cleantech venture capital than at any point in history, there have been recent warning signs. New data just in (for instance, falling Chinese property prices and sluggish export growth because of faltering first world economies, not to mention the first decline in clean energy project financing in China since 2010 as wind project financing declined 14% in the third quarter of 2011 on fears of over-expansion) suggests the Chinese economic engine is slowing. On the face of it, that might look bad for cleantech. But we put a lot of faith in China’s central government and the seriousness with which it views this sector as strategic. Even now, the country has just gone on the record forecasting creating 9 million new green jobs in the next 5 years. Nine million! And China has a good track record in executing its 5-year plans.
  • Rise in oil prices – Cleantech is a much wider category than energy. But for many, renewable energy is its cornerstone. And while there’s no question about the long-term markets for renewables, the biggest factor affecting their short-term commercial viability is the price of fossil-based energy. The good news: indications are that oil prices are headed upwards in 2012, which should be expected to help make renewables more economic. Naysayers maintain that a poor global economy will destroy demand for energy, keeping the price of oil artificially low. For much of 2011, the price of oil was relatively low. But we argue the price per barrel will continue its inexorable rise in 2012 given continued growth in the size of the global market for oil, driven by market expansion in the developing world. Further adding to the expected oil price increase is a little-known fact: there’s been a decline in the quality of oil the world is seeing on average. And the poorer the quality of the oil, the more it costs to refine it into the products we require. Oil prices are headed up.
  • Corporations’ even stronger leadership role – Corporate venturing was up in 2011, possibly setting new record highs, according to the data providers (4Q data not in yet.) Cleantech corporate mergers and acquisitions globally were up in 2011, again possibly setting new record highs, according to the data. The world’s largest companies assumed the leadership we and others predicted they would last year at this time—and indications are they will continue to do so in 2012, with balance sheets still strong.
  • Solar innovation as a perennial driver – Investment into good old solar innovation and projects is still strong, and has remained so for years, while other clean technologies have risen and fallen in and out of investment fashion. And that’s despitemost solar companies being in the red and having billions of dollars in market capitalization disappear over the last year. As some solar companies will continue to close up shop in 2012, look for investment into solar innovation to remain strong in 2012 as the quest for lower costs and higher efficiencies continues.
  • Persistence of the fundamental drivers of cleantech – The sheer sizes of the addressable markets many cleantech companies target, and the possibilities for massive associated returns, will continue to draw investors to the sector. Why? The world is still running out of the raw materials it needs. Some countries value their energy independence. More than ever, economies need to do more with less. Oh, and there’s that climate thing.

On the other hand: What worries us about the prospects for growth in cleantech investment in 2012

  • Investor fundraising climate tightening – Today, limited partners (i.e. “LPs” – the organizations and/or wealthy individuals that fund venture capital companies) are still bankrolling cleantech worldwide; in its 3Q 2011 Investment Monitor for clients, the Cleantech Group details 34 dedicated cleantech and sustainability-focused funds receiving billions in capital commitments internationally in the third quarter of 2011 alone. But we expect a slowdown in venture fundraising in 2012. Blame Solyndra for negative American LP sentiment. Or blame the lack of rock star returns in cleantech of late. But there are more indications than ever that some LPs are becoming increasingly reluctant to fund cleantech. They’ve been grousing about cleantech for years. But the politicizing of the Solyndra bankruptcy has amped the rhetoric higher than ever, and will foster a self-fulfilling prophesy in 2012, particularly in America, we believe.
  • Waning policy support in the developed world – Expected conflicting government policy signals to continue in 2012. Don’t expect cleantech-friendly U.S. policy leadership in 2012, an election year. We wouldn’t be surprised if the ghost of Solyndra and other U.S. Department of Energy stimulus grants and loan guarantees continued to haunt American cleantech through the whole of 2012, making any overt U.S. government support of clean or green industry unlikely. While cleantech is far from solely an American phenomenon, there’s no mistaking that the (now expired) American national loan guarantee program helped loosen private cleantech capital in an immediately post-2008 shell-shocked economy. However, continued uncertainty over the future of the U.S. Treasury grants program and production tax credits is holding the U.S. back. Policy support suffers elsewhere in the developed world. For instance, in the UK, investor confidence was recently dealt a blow by a dramatic drop in solar feed-in-tariff (FIT) rates, and the erosion of renewable policy support in Germany and Spain is well known.
  • Lag time of negative sentiment – Even if the sky indeed started falling in cleantech (and we don’t believe it yet has), it would take a few quarters to show in venture or project investment numbers. Remember, deals can take quarters to consummate. Transactions being counted now may have been initiated a year ago. Fear takes several quarters to manifest. Which is why we believe today’s uncertainty will start to show in 2012’s performance.
  • VCs still circling their wagons – In 2007, before the financial crash, the percentage of early stage venture investments into new cleantech companies was roughly the same as later-stage venture investments into established companies. Since the crash of 2008, deals have remained skewed—both by number and size of deals—towards later stage companies, illustrating investors’ preference to keep existing investments alive than take risks on new companies. While the exact ratio varies quarter to quarter, and from data provider to data provider, there have been generally fewer early stage companies getting funded. That’s hampering cleantech innovation. We expect the trend to continue into 2012.
  • Perennial concern about exits and IRR – Despite the size of its massive addressable markets and near-record amounts of capital entering the space today, on the whole, cleantech investors are still seeking the returns that many of their web and social media tech brethren enjoy. Even now, 10 years into this theme that we started calling cleantech in 2002. That’s not for lack of exits; 2010 saw the largest number of cleantech IPOs on record (93 companies raised a combined $16.3 billion) and 2011 has already had 35 without the last quarter reporting. And cleantech M&A activity in 2011 was strong and significantly higher than last year. No, the concern is for lack of multiples. For instance, 8 of the 14 IPOs of the third quarter of 2011 were trading below their offering price as of the publication of the Cleantech Group’s 3Q 2011 Investment Monitor. Don’t let anyone tell you exits aren’t happening in cleantech. They’re just underwhelming. And/or they’re happening in China.
  • Macro-economic turbulence, collapse, or at least, reform – They’re the elephants in the room: The Occupy movement. Arab Spring. Peak Oil. The continued and growing mismatch between overall global energy supply and demand and food supply and demand. Ever-increasing debt and trade deficits. Currency revaluation or political/military developments. Any or all of these could spur another massive global economic “stair-step” downwards of the scale we saw in 2008, or worse. Concern about all of these points and the impact they’d have on the cleantech sector weighs heavy on us here.

Venture dip made up for by rise in corporate involvement
The world’s largest corporations woke up to opportunities in cleantech in 2011, making for record levels of M&A, corporate venturing and strategic investments. General Electric bought lighting and smart grid companies. Schneider Electric bought some 10 companies across the cleantech spectrum. Corporate venturing activity was high, as were minority-stake investments. In just the third quarter alone, ZF Friedrichshafen invested $187 million in wind turbine gearbox and component maker Hansen Transmissions of Belgium, Stemcor invested $137 million into waste company CMA in Australia, and BP invested $71 million into biofuel company Tropical BioEnergia in Brazil. And there were dozens more minority stake transactions like these throughout the year.

Look for even more cash-laden companies to continue to buy their way into clean technology markets in 2012, supplementing the role of traditional private equity and evidencing a maturation of the cleantech sector.

Storage investment to retreat
Significant capital has gone into energy storage in recent quarters. In 3Q11, storage received $514 million in 19 venture deals worldwide, more than any other cleantech category. Will storage remain a leading cleantech investment theme in 2012? We’re betting no. Here’s why.

Storage recently made headlines as the subsector that received the most global cleantech venture investment in the third quarter of 2011, the last quarter for which numbers are available. An analysis of the numbers, however, shows the quarter was artificially inflated by large investments into stationary fuel cell makers Bloom Energy and ClearEdge Power. Do we at Kachan expect more investments of that magnitude into competing companies? No. Why? Even if you believe analysts that assert that stationary fuel cells for combined heat and power are actually ramping up to serious volumes (oldtimers have seen this market perpetually five years away for 15 years, now), just look how crowded the space currently is. Bloom and ClearEdge are competing with UTC Power, FuelCell Energy, Altergy, Relion, Idatech, Panasonic, Ceramic Fuel Cells and Ceres Power … just some of the better-known 60 or so companies vying for this tiny market today. And many are still selling at zero or negative gross margins.

But the main reason we’re not bullish on storage: Smoothing the intermittency of renewable solar and wind power might turn out to be less important soon. Sure, nary a week goes by without announcements of promising new storage tech breakthroughs or new public support for grid storage (e.g. see these three latest grid storage projects just announced in the U.S., detailed halfway down the page.) But we believe that utility-scale renewable power storage might be obviated if utilities embrace other ways to generate clean baseload power.

In 2012 or soon thereafter, we expect those clean baseload options will start to include new safer forms of nuclear power (don’t believe us? Read Kachan’s report Emerging Nuclear Innovations—U.S. readers, don’t worry: nuclear innovation won’t apply to you.) Or NCSS/IGCC turbines powered by renewable natural gas delivered through today’s gas distribution pipelines (see The Bio Natural Gas Opportunity). Or even geothermal (gasp!) or marine power (see below). All of these promise to be less expensive than solar and wind when you factor in the expense of storage systems required—incl. electrochemical, compressed air, hydrogen, flywheel, pumped water, thermal, vehicle-to-grid or other—if solar and wind are to be relied on 24/7.

Marine energy to begin coming of age
I’m a closet fan of marine energy, despite today’s extraordinarily high cost per kilowatt hour. We started covering wave, tidal and ocean thermal energy conversion equipment makers in 2006. Anyone who’s heard me talk publicly on the subject has had to suffer through hearing how I’d much prefer invisible kit beneath the waves than have to gaze upon solar and wind farms taking land out of commission.

In 2006, the lifetime of equipment from then-noteworthy companies like Verdant Power and Finavera (which since exited marine power after a failed test with California’s PG&E) in the harsh marine environment could sometimes be measured in days. The designs just didn’t hold up. Even Ocean Power Delivery, now Pelamis Wave Power, with its huge, snakelike Pelamis device, had hiccups in early onshore grid testing. Back then, the industry clearly had a long way to go.

Today, six years later, we think it’s time to start taking marine energy seriously. A high profile tidal project is now underway in Eastern Canada’s Bay of Fundy. Several weeks ago, Siemens raised its stake in UK-based tidal energy developer Marine Current Turbines from less than 10% to 45%, because it liked the predictability of ocean energy, and Voith Hydro Wavegen handed over its first commercial wave project to Spain. And last week, Dutch company Bluewater Energy became the latest vendor to secure a demo berth at the European Marine Energy Centre at Orkney, Scotland—the most important global R&D center for marine energy. Things are going on in marine power. Still, its major hurdle is the large variation in designs and absence of consensus on what prevailing technologies will look like.

2012 won’t be the year marine power becomes cost-competitive with coal, or even nearly. But you’ll hear more about marine power in 2012, and see more private and corporate funding, we predict.

Increased water and agricultural sector activity
Look for increased venture investment, M&A and public exits in water and agriculture in 2012.

At one point, only cleantech industry insiders championed water tech as an investment category (and, frankly, at only a few hundred million dollars per year on average, it still remains only a small percentage of the overall average $7B annual cleantech venture investment.) Industrial wastewater is driving growth in today’s water investment, with two of the top three VC deals of the last quarter for which data is available promoting solutions for produced water from the oil and gas industry, and the largest M&A deal also focused on an oil and gas water solution. Regulations aimed at making hydraulic fracturing less environmentally disruptive to will spur continued innovation and related water investments in 2012.

Where water was a few years ago, agriculture investment appears to be today. There was more chatter on agricultural investment than ever before at cleantech conferences I attended around the world this past year. Expect it to reach a higher pitch in 2012, because of:

Investing in farmland is even resurfacing, in these uncertain times, as a private equity theme.

Remember the food crisis three years ago, when sharply rising food prices in 2006 and 2007, because of rising oil prices, led to panics and stockpiling in early 2008? Brazil and India stopped exporting rice. Riots broke out from Burkina Faso to Somalia. U.S. President George W. Bush asked the American Congress to approve $770 million for international food aid. Those days could return, and they represent opportunity for micro-irrigation, sustainable fertilizer and other water and agriculture innovation.

And so concludes our predictions for 2012. What do you agree with? What do you disagree with? Leave a comment on the original post of these predictions on our site.

This article was originally published here. Reposted by permission.

Irrigation Scheduling for Agricultural Crops: It’s Not Just a Flip of a Switch!

For this second post in the “Sustainable Agriculture on Cleantech Blog” series, I decided to invite Dave Doll, UC Cooperative Extension Farm Advisor, and fellow blogger at Almond Doctor Blog, to share his expert knowledge about irrigation management for agricultural crops.
Agricultural use of water within California use has been a media magnet these days. With the reductions of pumping into the California Aqueduct from the Delta, California in its third straight year of a drought, and an increasing population that is putting strain on an aging infrastructure, it is not much of a surprise to find that water is on many people’s mind. In a normal year, 48% of the water is used for environmental reasons, 41% for agricultural purposes, and 11% for urban uses. In drought years, these percentages change, usually with reductions facing both the environmental and agricultural uses. Most water “rights” discrepancies come in terms of river restoration and/or protection of native species, which usually reduce water to local growers who then rely more heavily on groundwater to maintain agricultural production. One can see that battles between growers and environmentalist are common and fierce. An example of these can be found with court rulings of the Delta Smelt and the restoration of the San Joaquin River.
Being with water in high demand, are there ways that the water used for agriculture be used more efficiently? The answer is “Yes.” Agricultural water use efficiency can be improved by delivering water to the right place, at the right amount, and at the right time. The “Three Rs” is not a new concept: the most primitive irrigation systems established over 5000 years ago were reliant upon these same principles. Growers would water when the plants showed some sign of water stress (i.e. wilting), and water would be delivered to the root zone at an amount that appeared to wet the soil to the appropriate level. Thankfully, through the use of certain technologies, we can increase the efficiency of our irrigations through tools to that help refine the three Rs.
If the “Three Rs” have worked for 5000 years, why change now?
The current face of agriculture is changing. Water costs are increasing. In drought years, water prices may be over $500 an acre foot in some production areas of the West side of the San Joaquin valley. Increased rates are not just due to droughts; rates throughout California are increasing as urban and environmental water demand increases while supply has not increased. Secondly, the costs involved to apply the water are also high. Fuel and electricity for pumps, cost of irrigation filters and lines, and irrigation maintenance are not cheap and require hours of labor to install and repair. Furthermore, especially within the San Joaquin Valley, water must be properly applied to prevent run-off, prevent plant diseases, ensure adequate soil penetration, encourage leaching and prevent accumulation of salts, reduce evaporation, and produce maximum profits/yields. Knowing all of this, it is easy to understand why wasting of water is unacceptable as well as the reduction of yields caused by under irrigating.
So, how do we do maximize yield but reduce water waste?
Proper irrigation is achievable through monitoring the plant-soil-environment complex. The amount of water within the soil and its ability to be accessed by the plants roots can be measured/estimated through a variety of technologies. These include the low cost feel method, to the more accurate neutron probe. For most irrigation water management systems, one of the several electrical resistance or tensiometers systems are used. These are connected to data-loggers and can be transmitted wirelessly to computer software programs to help growers monitor soil moisture. Soil moisture readings are often used by themselves to schedule irrigations, but they are most valuable when used with data that takes in consideration the water demands influenced by the environment and plant.
Plant water use varies by the stage of growth of the plant. Typically, water use is the highest when the plant is fully leafed out, with maximized leaf surface. This is because the more leaf surface transpiring, the more water is lost through the opening of the stomates. As stomates open and close, water vapor, which is at a high concentration within the plant, is released into the low moisture environment through diffusion. This is also why plant water use is the highest on days with high temperatures and low humidity. To simplify the plant-environment water interaction, the term evapotranspiration is often used. This term encompasses the loss of water by both the evaporation off of the surface of the plant and soil, and the water lost through transpiration. This value is determined by weather stations and multiplied by the respective crop and crop growth stage to determine the water use. Throughout California, these values are recorded and calculated from over 100 weather stations and made available through the California Irrigation Management Information Systems.
Outlined above were brief explanations of the tools available to calculate how much water is in the soil, and how much water is used by the plant and environment. Knowing this information, how can we use the “Three Rs” to reduce water use by increasing irrigation efficiency? By viewing the soil profile as a reservoir for the plant’s water, and calculating the daily water needs of the plant, we can determine how long the plant can survive off the water available within the soil profile. When the soil profile is close to depletion, a timed irrigation of the proper amount can refill the profile, restarting the cycle. This is the premise of basic irrigation scheduling. As one can see, proper crop irrigation encompasses more than “just a flip of the switch.”
Complexities within soil texture and soil water holding capacity, variance in efficiencies of different irrigation systems, plant water potential, and regulated deficit irrigation are all topics

that increase irrigation efficiency and will be discussed in later articles.

Marguerite Manteau-Rao is VP Marketing for Terraqualo, a new venture in precision irrigation for growers of specialty crops. Marguerite is the creator of La Marguerite, a popular environmental blog, and has written extensively for a number of other blogs, including Huffington Post Green. She has a multidisciplinary background as an engineer, marketer, and social worker.

Getting Smart About Agriculture

Nine months ago, I joined Terraqualo, a new startup aimed at helping growers of specialty crops make best irrigation decisions, using a cost-effective wireless network of sensors and actuators. In this new weekly column on “Sustainable Agriculture on Cleantech Blog”, I will share some of the lessons I have learned, and invite you to contribute as well in the form of comments. 

Whether you are an investor looking to invest in an agriculture technology startup, or an engineer with a high-tech idea for agriculture, eventually, you are going to need to do your homework, and understand the business of agriculture. As I have discovered, getting into the field of agriculture high-tech  requires the ability to grasp multiple disciplines, and a good dose of humility. Before you go out and talk to the experts, UC Davis professors, farm advisors, commodity groups, and growers, I suggest you get smart very quickly, using the vast knowledge available online. Here are some of my favorite sources,
USDA websites:
  • NASS (National Agricultural Statistics Service)
  • ARS (Agricultural Research Service)
  • NRCS (Natural Resources Conservation Service)
  • ERS (Economic Research Service)
  • Census
UC  ANR (Division of Agriculture and Natural Resources) 
Scientific papers:
Farmers’ publications:
Happy research!
Marguerite Manteau-Rao is VP Marketing for Terraqualo, a new venture in precision irrigation for growers of specialty crops. Marguerite is the creator of  La Marguerite, a popular environmental blog, and has written extensively for a number of other blogs, including Huffington Post Green. She has a multidisciplinary background as an engineer, marketer, and  social worker. You can follow her on Twitter .