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CJK: Solving PM2.5

Signatories at the 15th Tri-Partite Meeting

Signatories at the 15th Tri-Partite Meeting

PM2.5, which are particulate matters less than 2.5 microns, are perhaps the most important type of environmental air pollution in Asia. Driven by high economic growth, coal plants, particularly those from China, give off these particulates. The problem is so serious that Korea and Japan are directly affected by this pollution. In fact, these matter are able to travel across the Pacific Ocean and contributed to a large part of the pollution in North America.

In spite of the political posturing taking place between Japan and Korea and China, the governments are actively working to address this challenge. Hosted by Ministry of Environment of Korea, the Environmental Ministers Meeting among Korea, China and Japan at the end of this April to implement an initiative on enhancing environmental cooperation and dialogue. The meeting resulted in a communique that was signed by Environment Minister Nobuteru Ishihara, Chinese Vice Environmental Protection Minister Li Ganjie and South Korean Environment Minister Yoon Seong-kyu at the end of their two-day talk in the South Korean city of Daegu. 写真-3Under the agreement, Japan and South Korea will offer technical assistance and support to China for the import, development, production, and deployment of technology for reducing the volatile organic compounds (VOC) that are PM2.5.

A simultaneous Business Forum was held in which  50 (21 delegations and 29 observers) participants from the three countries participated in the meeting. Japanese representatives introduced corporate activities related to reducing CO2 emission, and products that are energy- and resource- efficient. Concepts such as the Smart House and Communities were shown with model sites in Japan and China shown. One Japanese company introduced solutions and actual activities for water pollution management while a Chinese company shown activities in the “venous” industry such as solid waste resource, urban mining and hazardous waste disposal. The Korean representatives introduced their concepts of water / waste water treatment plants, biological treatment, landfill reclamation, and waste sorting and recycling, etc.

In one of the panel discussions, the participants discussed the roles played by the governments in waste management and how that differed from the role of private environmental businesses.  They also highlighted the technology developed and used on water reuse in Northeast Asia and how these can be utilized in other countries. In addition, the role of government in landfill management was emphasized and how governments should play a role in this aspect of the environment.

Smart Cities

Two events I attended this month brought home the importance of cities as centers of solutions for urban sustainability and climate change. In the absence of a global agreement to limit greenhouse gas emissions, cities around the world have already made efforts to decarbonize their economies. Global networks like the C40 include energy and climate as major issues that cities need to tackle if they are to be responsible stakeholders.
LockeMy colleagues at Cypress Rivers invited me to attend the China 2.0 Forum at Stanford University. The keynote speaker was one other than US Ambassador to the PRC, Gary Locke. While the focus of his talk was on the need for financial reforms in China, Ambassador Locke made note of country’s crucial role in the climate problem and how local governments were already taking the initiative there. Every week, the US embassy in Beijing is being contacted by city and country officials who are finding a wide variety of technologies from waste management to transportation solutions.

Indeed, the opportunities are enormous for win-win as American companies can provide the necessary know-how to help these cities find appropriate solutions for their energy and environmental challenges.

SCWOver in Asia, the concept of smart cities have been promoted for several years. Although there is no standard definition, a smart city is characterized as one that uses well designed planning and advanced ITC to create conditions that are conducive to economic growth comfortable lifestyles, and responsibility for the environment.  As a technology driven country, Japan has made enormous efforts in this area with several model cities. Among them, Yokohama is considered one of the “smartest” and has been the host of the annual Smart City Week. These include innovations for local energy production and delivery, water procurement and distribution, and waste management and recycling.

Another highly touted model in Japan is the Kitakyushu Model, which offers know-hows in urban development by integrating waste management, energy management, water management, and environment conservation. Case studies include Kitakyushu Ecotown which has high concentration of recycling plants. In a toolkit in the package, it also has a checklist for making a master plan. They are available on the web.

This year, the discussion at Smart City Week focused on the concept of public-private partnerships (PPPs). Also known as business to government (B2G), it is a framework at the city and municipal level for facilitating, and in some cases, financing the implementation of infrastructure projects. Not only do technology providers play an important role in these relationships, real estate are often promoting these types of projects from energy efficient buildings to urban restructuring. Moreover, these projects must also look at how to better engage residents as stakeholders in their communities. While technology plays an important role, awareness and behavior play as important of a role.

What makes innovation at the city so important in the global scheme is that successes at this scale can be easily learned from each other. These experiences to share ideas and what works can build the confidence and trust needed towards building a global consensus to limit greenhouse gas emissions. Indeed, smartening our cities will be an ongoing process but meetings like Smart City Week give leaders and implementers to discuss what works, what doesn’t, and why.

 

Chinese Food For Thought

As I posted a few years ago, so many of the best opportunities for cleantech to have immediate benefit can be found in China.

Every day, evidence accumulates supporting this thesis.  Of course, this winter’s air pollution crises in Beijing and other cities made global news.  More gruesome was last week’s discovery of nearly 7,000 dead pigs floating in a river outside Shanghai.

The true extent of environmental abominations in China is unknown.  As this article indicates, the Chinese government guards a substantial body of data about environmental quality — and the Chinese citizens are getting increasingly angry about what they know they don’t know.

To the extent that there is good news to report, it is that China has clearly become a prime destination market for clean technologies to penetrate.

The Pew Charitable Trusts commissioned a recently-released study by Bloomberg New Energy Finance indicating that the balance of trade between the U.S. and China on three key segments of cleantech — wind, solar and smart grid — actually tilts more to China than from China.  This finding conflicts with conventional wisdom, which holds that cleantech exports from China to the U.S. must be dominating the balance of trade, as illustrated by the widespread evidence of Chinese companies dumping low-cost solar panels onto U.S. markets.

For years, knowing how vast the opportunity is, I’ve been trying to figure out how to better facilitate promising clean technologies in entering China to make a big environmental impact (and, of course, do well commercially and financially in doing so).   Of course, I’m not alone, and others have acted while I pondered:  organizations such as JUCCCE and the US-China Clean Tech Center have arisen in the past few years to offer their services.  I guess they’ve been able figure out what I couldn’t:  a clear strategy and compelling business model for serving as a conduit for cleantech dissemination into China from outside China.

A Cleantech State of the Union

With October now upon us, data providers are beginning to issue their preliminary analyses of cleantech investment in the third quarter of 2012 that just closed. This quarter, the Clean Energy pipeline service of London’s VBResearch is the first to weigh in, counting cleantech venture capital & private equity investment (excluding buyouts) as approximately $1.7 billion.

Data from other providers, like Dow Jones VentureSourceBloomberg New Energy FinancePwC/NVCA MoneyTree, and Cleantech Group will follow in the coming days. No two providers’ numbers will be the same, given differences in how they define cleantech and what exactly they track.

Based on latest quantitative and qualitative data we at Kachan & Co. have access to, here’s our own analysis of the state of the union in the global cleantech market, and why.

Consider the following a snapshot of the current health of the cleantech sector, informed by—but not simply an analysis of—the third quarter numbers.

3Q12 investment is expected to be approximately the same as the one previous. Venture investment in cleantech is going to be down overall this year over last.
The second quarters of the year in cleantech are usually down, if you look at historical data—so a relatively poor 2Q12 was no surprise—but third quarters are historically usually the best quarter of the year for global cleantech investment. Based on deals we’ve seen, we’re expecting about $2b in venture investment in global cleantech in the third quarter of this year once all the data is in, and that sometimes takes a few month after the quarter closes. $2b is not great, as compared to previous years on record, but it’s okay. It’s not as if cleantech investment has halted. Cleantech is still one of the world’s dominant investment themes.

For interest, some of the largest deals of the quarter:

  • $200m to China Auto Rental, efficiency/collaborative consumption, Beijing
  • $136m to Alarm.com, efficiency/smart grid, Virginia
  • $104 to Elevance Renewable Sciences, biochemistry, Illinois
  • $104 to Fiskar Automotive, transportation, Irvine CA
  • $93M to Element Materials Technology, advanced materials, the Netherlands

Venture #s aren’t just down because of natural gas.
Last year, we predicted global venture and investment into cleantech to fall. Not dramatically. But we expected cleantech venture in 2012 to show its first decline following the recovery from the financial crash of 2008. Why? Three big reasons: the lag time of negative investor sentiment towards cleantech that started in 2011, waning policy support for cleantech in the developed world and an overall maturation of the sector that’s making it arguably less dependent on venture capital as corporations take a more significant role.

When you the continued low price of natural gas undermining clean energy innovation and project deployment, it should be no surprise that cleantech metrics are down.

But while the price of natural gas is one of the reasons cleantech is depressed, it doesn’t mean the end of the line for the whole of the space. Natural gas is eroding the compellingness of clean energy, but cleantech is more than just energy. Cleantech, as defined, is much broader, and includes transportation, agriculture and other categories that may actually see benefit from lower natural gas prices.

Plus, there are natural gas innovations that could be key to the success of future renewable energy. Renewable natural gas—gas from non-fossil-based sources—could end up the most important form of renewable energy, because it could be distributed in today’s transmission infrastructure, and help utilities generate baseload renewable power without solar or wind, or expensive renewable energy storage. Kachan & Co. has published a report in conjunction with a gas company that profiles seven firms at the forefront of generating large quantities of pipeline-grade renewable natural gas from biomass, based in Germany, the Netherlands, Norway, Switzerland, the U.S. and Canada.

With venture down, pay attention to the increasingly important role of corporations in cleantech. Large global multinationals are increasingly participating as clean technology investors, incubators and acquirers. With the largest companies worldwide sitting on trillions in cash, the climate is right for increased corporate multinational M&A, investment in and purchases from cleantech companies. Corporations have become the source of cleantech capital to pay closest attention to going forward.

Investors are worried about returns in cleantech; some are distancing themselves from the sector. Will that leave governments and large corporations to help companies through the valley of commercialization death?
Not all cleantech investments have worked out as planned. Investors are still waiting for their cleantech portfolios to produce expected returns. Why? Many cleantech investments are still sitting in managers’ portfolios waiting for an exit.

The cleantech exit environment is indeed suffering. The North American and European IPO markets remain shut, while public exits are alive and well in China. There were 9 clean technology IPOs raising a total of $1.79 billion in 2Q12, the last quarter for which data is publicly available at this writing, and ALL of them took place in China. We first raised alarms about this trend a couple of years ago. It’s the major area of concern for investors currently. And cleantech mergers and acquisitions are still depressed. Global cleantech M&A activity totaled $16.3 billion in 3Q12, according to VBResearch. That’s a 68% increase on the $9.7 billion in 2Q12 but a 30% decrease on the $23.2 billion recorded in the same period last year.

Of the capital that is being deployed, less of it is going to early stage deals. Venture investment in early stage cleantech rounds fell to a mere $382 million in 3Q12, the lowest quarterly volume since 2009, by today’s Clean Energy pipeline numbers. The large year-on-year decrease was caused by an absence of large solar deals, according to the company.

Limited partners (LPs), the institutions that fund venture capital firms, are less enthusiastic about cleantech today. Why? Mixed returns. The 5-year old CalPERS Clean Energy and Technology Fund, a fund-of-funds-type program, had a net internal rate of return since inception of -10% on $331.7 million invested as of Dec. 31, 2011, the last period for which data is available, according to data obtained by Pensions & Investments. Contrast that with the performance of Riverstone/Carlyle Renewable and Alternative Energy II. While only some $172 million of its $300 million commitment in September 2008 has actually been invested, the pension fund has seen a 12% net IRR from the investment as of Dec. 31, 2011. CalPERS’ $25 million commitment to VantagePoint CleanTech Partners LP, made in 2006, has earned a 12.4% net IRR—again, according to Pensions & Investments.

Most cleantech investors will have heard of Moore’s Law. Now some are learning, if they hadn’t known of it by name previously, of Sturgeon’s Law, that ‘90% of everything is cr*p.’ Which, unfortunately, but clearly, also applies to cleantech investments.

It begs the question: If venture investing is down and large corporations are taking more of a role in fostering cleantech innovation, can they and governments (which we argue should get out of the business of funding cleantech companies) be trusted to support emerging cleantech innovation as it struggles to reach meaningful commercial scale and availability? Increasingly, venture investors are proving reluctant to play this role in cleantech, given the large sums required.

What will propel cleantech’s success.
While much has been written about how global policy support has waned in cleantech, a silver lining is to be found in Japan. Japan’s new feed-in tariffs are among the most impressive the planet has yet seen, even more so than Germany’s former solar support. Japan is showing signs of helping breathe life back into the solar sector in an important way (download this free report that details Japan’s newfound commitment to cleantech.)

Say what you will about the murkiness of the future of clean energy, the fundamental drivers of the wider cleantech market persist. The sheer sizes of the addressable markets many cleantech companies target, and the possibilities for massive associated returns, will continue to spur innovation and support for 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.

Cleantech is the future, undeniably. It can’t NOT be. We need to reinvent every major infrastructure system on the planet, from energy to agriculture to water to transportation and more. And we have to live more efficiently to accommodate more people than ever. Large corporations see record opportunity for profits in doing this—and that’s what’s going to be the biggest driver of clean technology, we believe, institutional investment hiccups aside.

Don’t focus too much on quarterly ups and downs.
Finally, note that quarterly numbers are a good leading indicator of transitions. But there’s a danger in reading too much into quarterly figures, and lumpiness of individual quarters, which are easily skewed by large individual deals.

This article was originally published here and was reposted with 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 www.kachan.com.

The End of Nuclear Power? Or Just the Beginning?

This week’s news: US NRC freezes decisions on new reactor, license renewal applications

“The US Nuclear Regulatory Commission voted unanimously Tuesday not to issue final decisions on granting licenses to build new nuclear power reactors and 20-year license renewals to existing ones, pending resolution of the agency’s waste confidence rule overturned by a court in June.

The commissioners, however, also ordered that NRC review of these license applications continue and that the agency’s Atomic Safety and Licensing Board Panel not accept or deny new challenges that may be filed in these proceedings relating to waste storage issues.”

Nukes in the US not dead of course, but the revival still on hold?

 

The post Fukushima nuclear future in Japan?  Still shut down, the replacement generation fleet still a patchwork.  The future is . . .?

 

And Germany?  Trying to get out of nukes puts intense pressure on gas (from Russia), renewables, and the grid.  As well as adds costs. Prognosis unclear.

 

Has Fukushima changed China’s nuclear energy ambitions? Or just its technology choices?

 

And exactly what are the costs for nuclear?  I will say generally, that on a cents per kwh basis, the broad lowering of interest rates benefits nukes better than any other form of power but hydro, given the combination of high portion of the of costs from the capital, and the high capacity factor.

 

So is the end of nuclear power’s 50 year challenge to coal power insight?  Or are we on the verge of a resurgence?  Situation unclear at best.

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.

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.

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.

N.I.M.B.Y. – To an Extreme

by David Niebauer

The Story of Rare Earth Metals

A recent article in the WSJ peaked my interest about Rare Earth Metals.  The article discusses how Toyota is searching for an alternative to neodymium, a rare earth metal, in the batteries of its electric and hybrid vehicles.  I have heard other’s bemoan our use of rare earth metals (REMs) and how the earth’s crust only holds so much of the stuff.  So I began researching the subject, expecting to find viewpoints similar to those in the Peak Oil debate.

What I discovered is quite a different story.

It turns out that REMs are not rare at all.  They are a collection of seventeen chemical elements at the bottom of the periodic table found plentifully distributed in the earth’s crust (See here for more information).  They were probably deemed to be rare when discovered in the late 19th Century because no one noticed them before.  REMs have become a fixture in high technology devices and applications.  They are common in all types of electronic devices, solar panels, wind turbines and many types of batteries and superconductors.  Much of cleantech depends on them.

The problem with REMs and why they are so “rare” is that mining and refining for them is incredibly damaging to the environment.  Extraction requires a huge amount of ore (making it highly energy-consuming) and toxic acids that eat into the soil and persist for decades.   To make matters worse, REMs are often found with even heavier elements, such as uranium, making the mine tailings radioactive.

So what has the industrialized world done about this?  Have we found new energy-efficient and environmentally safe ways to refine REMs for sustainable development?  Have we subsidized and encouraged recycling programs so the REMs that we do use can be reused in new and more useful applications?

No.  We have shipped our problem to China.  China now accounts for the production of over 97% of the World’s consumption of REMs.  The Chinese are apparently able to do long-term planning.  They take on dirty, inefficient, labor-intensive work that no one else wants to do, and then make themselves indispensible to the global economy.  But even the Chinese are realizing that something has to give. Recently, they have slapped on increasing tariffs and have started to squeeze the spigot of REM supply.

The Chinese have not always had a corner on the REM market.  In fact, during the 1960s through the 1980s, world production of REMs was centered in Mountain Pass, California.  If the price is right, I assume that the Mountain Pass rare earth mine will re-open.

Recyclers of electronics and PV panels do exist, but they are not exactly the darlings of the investment community – which means that the incentives are not there.  It’s cheaper to consume voraciously and dump the waste in someone else’s backyard.

I usually finish an article like this by saying something along the lines of: something’s gotta give!  But maybe it will take a crisis of historic proportions for anything to truly be done.  Putting a price on environmental degradation would go a long way.  But even trying to manage industrial carbon emissions appears to be too much for our short-sighted politicians.

But really, it’s not even the politicians.  We all have our heads in the sand – or at least I do.  So much of “business as usual” is rife with these kinds of inefficiencies and environmental time bombs.  I continue to buy my electronic devices without thinking too much about what it takes to build them – only to toss them away when I no longer have a use or when I find a better new toy.  I send them to the landfill – its only a drop in the bucket, after all.

I wish I had an answer.  I suppose the rest of the world will begin refining REMs again and will eventually find more environmentally benign ways to do it.  After all, it will now actually be in our back yard.  Maybe even the time will come when we recognize that, in fact, everywhere in the world is our back yard; that living on the planet requires long-term thinking and technologies for sustainable development.  Our future depends on it.

David Niebauer is a corporate and transaction attorney, located in San Francisco, whose practice is focused on clean energy and environmental technologies.  www.davidniebauer.com

Will the 21st Century be the Fossil Fuel Century?

Will the 21st century be the fossil fuel century?

Whether it’s peak oilers, climate scientists, renewable and sustainable gurus, or cleantech venture capitalists, we all talk like that’s not an option.  We’ve preordained that the 21st century is a green energy, renewable power, cleantech century.

And I’d like to believe that.  But it’s not a done deal yet.  There are 3 points all of us need to keep in mind before declaring victory.

  1. China, the second largest and fastest growing large economy in the world consumes half the global coal consumption, powered in part by North American and Australian coal supplies, and by a huge increase in Chinese domestic coal production.  This year’s EIA reference case 2035 projection has China’s coal consumption doubling by 2035, driving most of a 50% increase in world coal consumption – and virtually no change in coal’s proportion of the energy equation.  Powered of course with current recoverable coal reserves at some 900 billion tons, or 120+ years of current production.
  2. Brazil, the poster child of biofuels potential the last 10 years, is making a play with its deep water subsalt discoveries to be one of the oil exporting superpowers.  And check out the announcement of its $224 Billion 5 year oil investment program.  That’s like a couple of thousand ethanol plants ,or one major oil company.  The Brazilian offshore finds to date represent production something like 5-10x the current Brazilian ethanol production.  Some poster child.
  3. And then there’s shale gas, its potential exemplified by the Marcellus Shale.  By some estimates this resource is big enough to change the entire game in fuels for power. And most of it’s located right down the street from the heart of the US population centers, just like the coal beds were.  Hard to see how electricity prices keep rising to help renewables in the face of that, with natural gas prices being  moderate and all, (unless of course China eats all the coal and drives coal prices up –  a global fossil fuels century either way?).

Imagine a 21st energy century where the US growth is powered by cheap natural gas, and exports our coal to China to even out the balance of payments.  Where increases in ethanol production and offshore oil production and slightly higher gasoline prices and mpgs balance out most of the transport fuel equation. A world where renewables play an important part, but still stay at margin of the King Fossil.

It’s not a world unimaginable.  And it’s not much different that the imagination might have done seen in 2000, or 1990, or 2050.  This shouldn’t be doom and gloom, nor should it be time to declare a cleantech victory.   The 21st energy century will be a long century.  And it’s just business as usual.

Predictions for cleantech in 2011

It’s December, and time for an annual reading of the green [tech industry] tea leaves. What will the new year have in store for cleantech?

From our standpoint at Kachan & Co., 2011 could be a strong year for the global clean technology sector. Seemingly, the markets have been correcting themselves in 2010; valuations are returning to rational P/E multiples, price signals are emerging again after massive government investment in cleantech, early stage deals seem to be returning, corporate investment is flowing, new funds are being announced everywhere. Outside the U.S., which is having an increasingly hard time supporting the sector, cleantech is alive and well, even in exits… albeit mostly in China.

While we’re calling a positive 2011 for the industry, the largest risk, to cleantech and every sector in 2011, will continue to be the spectre of another global economic slide: another massive economic “stair-step” downwards prompted by the continued and growing mismatch between global energy supply and demand, food supply and demand, ever-increasing debt and trade deficits, currency revaluation or political/military developments. Any one, or combination of these, could result in another 2008-scale financial crisis, or worse.

Yet, if none of the above make themselves felt, 2011 could be a solid year for worldwide cleantech. Here’s why, in our analysis.

Sustained worldwide VC investment in cleantech in 2011
Predictions of cleantech’s death, or bubble, are exaggerated, we believe. Kleiner Perkins may be looking to scale back its cleantech investing. But that doesn’t mean cleantech companies won’t be getting funded, or that the sector is on the downside of a bubble, as some have called it. The big drivers of cleantech remain: resource scarcity and the drive for greater efficiencies, the desire for energy independence, and (dare we say it?) climate change—the latter of which has taken a back seat of late. We predict these drivers—particularly the real or perceived scarcity around oil, rare earth elements and other commodities—will be felt even more acutely in 2011, especially as the Chinese middle class expands, further cementing the demand for and the market validity of clean technologies.

Much media attention was given to a downturn in cleantech investing in the third quarter of this year, in particular North America’s share of it. But doomsayers missed that there was still a fourth quarter in 2010 to report. And that worldwide, cleantech investment hasn’t fared that poorly in 2010. Indeed, as tracked below, 2010 venture investment in cleantech, even simply up to and including 3Q10, has already exceeded that of all of 2009.

Cleantech Investment 2010 YTD

Venture investment in cleantech in 2010, up to and including 3Q10, already exceeded that of all of 2009. The full 2010 total will be at least $1B higher when fully tallied and reported in 2011. That'll make it the second best year on record—hardly a bubble that's burst. Source: Cleantech Group

We believe venture investors will continue to chase opportunities in cleantech in 2011, investing robust amounts from record-level funds raised recently around the planet. Make no mistake: there’s plenty of capital being allocated for cleantech in 2011. Another $500 million has just been announced from the California Public Employees Retirement System (CalPERS). Hony Capital in China is closing in on a new 10 billion RMB ($1.5 billion) fund, and there’s a new €9b ($12.4b) NER300 fund for cleantech in the EU. And that’s just three of dozens announced in the last month.

Yes, there are concerns about exits and long time horizons in cleantech, but 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.

Venture capital will continue to cede importance to corporate and non-institutional capital
As important as venture numbers are, they are no longer the single barometer of the state of worldwide cleantech investment. They don’t factor in most angel, project finance, private equity, sovereign and other sources of capital that are now making an impact in cleantech worldwide.

One of the most important sources to watch is corporate venture funding. Look for large companies to invest billions in cleantech in 2011. In recent weeks, Suez Environnement, affiliated with GDF Suez, created a venture capital fund called Blue Orange to invest primarily in waste management. GE invested $200 million+ in a handful of cleantech companies under the auspices of a competition. Corporations continue to form corporate venturing arms, driven not just by returns, but by associated corporate social responsibility (CSR) benefits.

Also anticipate an increase in corporate-led cleantech M&A activity in 2011, which reached record levels in 2010. Expect cash-laden firms to pick off even more leading technologies and concepts, as in recent transactions like Constellation buying CPower, and Sharp’s purchase of Recurrent Energy.

A return to early stage venture investments
We predict a return to early stage venture capital investing in cleantech in 2011. Already, in the last few months of 2010, data shows the pendulum has begun to swing back to early stage deals. In the third quarter of 2010, 46 percent of all cleantech deals worldwide were early stage deals, according to latest data.

Why? Investors are no longer piggybacking on U.S. government grants and loan guarantees, which had skewed investment into more mature cleantech companies. Government stimulus funds earmarked for cleantech by the U.S. and other countries globally are now largely allocated. In 2011, venture investment in cleantech will return to what it does best: seeking out emerging early stage technologies and teams that promise good multiples, and will be less influenced by governments putting large amounts of capital to work themselves. Funds are still being raised. And those funds will need to be invested.

Energy efficiency emerges as the clear rock star of cleantech
Yes, we have a broader definition of energy efficiency than others (see our cleantech taxonomy here). But efficiency—including smart grid, where we expect continued massive investment and corporate activity—really just got underway in 2010, so expect big things in 2011. To wit: GE’s huge announcements, investments and acquisitions in the third quarter of 2010. And just over a month ago, Russia unveiled a massive energy efficiency plan, given that the country apparently wastes as much energy in a year as the French economy consumes.

There were some calendar quarters in 2010 where more venture investment went into solar than efficiency, but in 2011, look for efficiency to become the clear dominant investment theme as investors continue to seek less capital intensive efficiency plays and eschew solar, where company valuations have been swinging wildly in 2010 from continued supply/demand and international subsidy havoc.

Anticipate a Darwinian winnowing of efficiency companies in 2011—partially because of concerns about differentiation, and partly because of the long sales cycles of utilities that are only starting to become appreciated to some startups. There will be failures in 2011 in certain advanced metering companies and other firms engaged in death-by-trials with utilities, and some winners among favorite brands like OPower, EnergyHub, Tendril, Silver Spring, eMeter, AlertMe, Energate. The deep-pocketed stand the best chance of surviving.

Biofuel investment could reach former highs
If economic growth continues in 2011, oil prices will rise, making renewables more cost competitive. And after several years of relatively inexpensive oil, we predict an upswing in biofuels investment in 2011, specifically, that will catch some unaware; investors still smarting from crop-based ethanol and biodiesel, cellulosic ethanol and algal oil disappointments may not see adrop-in biofuels revolution at hand.

The excitement will not be over cellulosic ethanol, which we saw disappear from headlines in 2010. Cellulosic ethanol may even disappear from investors’ portfolios altogether in 2011, if the U.S. EPA lowers its cellulosic ethanol mandates yet again. We believe the recent jump in the share price of Amyris (NASDAQ:AMRS) is representative of a larger awakening to the transportation, storage, energy balance and fungibility benefits of drop-in biofuels, i.e. chemically similar diesel, jet fuel, butanol, bio natural gas and others.

In biofuels in 2011, as elsewhere in cleantech, look for biology to trump chemistry. And for the likes of Amyris, Codexis (NADAQ:CDXS) and Gevo to make more commercial progress than cellulosic companies Range Fuels, Coskata and Mascoma.

Nuclear surprises, but not in U.S.
Expect to hear about more and more nuclear innovation in 2011, as the industry begins cautiously testing new science after decades of relative inactivity. However, don’t expect the U.S. to lead in either the science, the trials or the adoption: watch Asia, Europe and Canada as centers of innovation and where trials of new nuclear tech will be performed in 2011. Companies to watch include Thorenco (new reactor designs based on thorium fuel), Thorium One (thorium fuel for existing reactors, trials scheduled to start in existing reactors in 2011), Kurion (glass encasing of nuclear waste), General Fusion and others. Nuclear development will remain stalled in the U.S. in 2011 in regulatory and public opinion purgatory while the rest of the world passes it by.

Recycling and mining will attract more investment
Rising commodity prices have been quietly making the economics of recycling and recovery of trace materials more commercially viable. Silver almost tripled in price in 2010. Gold doubled. Companies that recover and reprocess materials, such as scrap metal, used lithium batteries or mining tailings, will be companies to watch in 2011. BacTech Mining (CVE:BM), Simbol Materials, Buss & Buss Spezialmetalle, DeMetai Technologies, MBA Polymers and GFL Waste & Recycling (which just got a$100m private equity infusion) are examples of companies that could benefit from commodity prices that will continue to rise in 2011. That’s barring a macro-economic downturn that, like everything else, whacks the price of commodities (gold bugs note: metals are not immune to market gyrations! Gold fell substantially in the 2008 global downturn).

Natural gas emerges to threaten solar and wind for utility renewable power generation
Renewable natural gas? Today it’s fossil-based. But what if chemically identical natural gas (not just messy syngas) could be made inexpensively from practically free feedstock? Such gas, if indistinguishable from petro-based natural gas, could be transported in existing pipelines and sold at a premium to industrial customers like power utilities anxious for a cheaper renewable source than solar and wind. And, if burned in existing IGCC / NGCC plants, such power could be baseload 24/7 renewable energy. Look for scientific innovation in natural gas in 2011, increased political support for it as a transitional “cleaner” fuel, a folding in of it into renewable energy standards and general cleantech industry buzz over it being an important new wagon to hitch to.

China becomes the most important market for cleantech: if you’re not selling in China, you won’t matter
Expect the leading cleantech IPOs of 2011 to continue to be on the Shenzhen and Hong Kong exchanges, as they were in 2010. Central government support of Chinese clean technology companies on Chinese exchanges will continue to give the country’s solar, wind and other vendors advantage in access to capital, growth and, therefore, ability to scale and conquer worldwide.

Kachan & Co. made a case this past August that China had assumed the worldwide leadership position as a cleantech market and supplier. This week, Ernst and Young asserted the same thing. So it’s time to underscore it again: if you’re not selling into China in 2011, you’re missing the biggest market for your clean technology product or service.

in 2011, the leadership of cleantech vendors and service providers will be determined by the extent of their traction in China. It’s the largest and the fastest growing market for clean technologies, and to ignore it out of concern for intellectual property or other costs of doing business will be to watch most of one’s addressable worldwide market disappear to competitors that willshoulder the costs of business in China.

We’d welcome rhetoric in 2011 being less about how countries could or should compete with China’s cleantech leadership, and more focus on how to simply get on with capitalizing on the commercial opportunity that Chinese growth represents. While there’s still a worldwide financial system to profit from.

[Reposted by permission from http://www.kachan.com/cleantech-greentech-predictions-2011-forecast-trends]

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. Its 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 www.kachan.com.

It’s About China, Stupid

by Richard T. Stuebi

In the energy sector, it’s becoming increasingly clear that the name of the game — whatever game you wanna talk about — is China.

My favorite recent contribution to this strain of literature was a blog entry from late August written by the Center for Geoeconomic Studies at the Council on Foreign Relations
called “China Will Force the World Off Oil”. Here’s the eye-popping core of this short post:

“As a country’s per capita income increases, its per capita oil consumption increases. Consumption growth tends to be modest up until $15,000 income per head, but then accelerates rapidly. China is quickly approaching this point…Were China’s per capita oil consumption be brought up to South Korea’s, its share of global consumption would increase from today’s 10% to over 70%. In order to cap China’s share at 22%, which is the U.S. share today, global oil output would have to increase by a massive 13% per annum over ten years — well beyond the 1% growth averaged since 1975. This rate of growth is inconceivable, even if vastly more expensive sources of supply…were developed at breakneck speed.”

And, of course, this is why China is leading the pack on advanced energy technologies of all sorts to move off of oil and other fossil fuels. Take batteries, for instance: as Thomas Friedman noted in his late September New York Times editorial “Their Moon Shot and Ours”, China will be “providing $15 billion in seed money for the country’s leading auto and battery companies to create an electric car industry.”

Note the choice of words: Beijing is not aiming to merely build companies, but to create entire industries. (Of course, that’s easier said than done, and top-down command-and-control economic dictates don’t necessarily produce success.)

And, note the magnitude of dollars: $15 billion of them, just for electric vehicles (not to mention investments in solar energy, wind energy, etc.). In contrast, according to some comments made at the Cleantech Forum in New York earlier this month by Dr. Arun Majumdar, Director of ARPA-E, the U.S. spends more each year on potato chips than it does on energy sector R&D.

Here in the U.S., we don’t have a lot of disposable dollars either in public or private coffers, and we aren’t inclined to allocate a large share of the little we have to our energy challenges. China has lots of bucks — primarily from U.S. purchases of consumer products — and is flowing a large portion of them to energy technologies. The Chinese can see, as apparently we Americans can’t, that the current energy paradigm isn’t sustainable — even if we loved it and didn’t want it to change. Even though status quo isn’t an option, we Americans seem to think our current system of energy supplies, technologies and economics is a destiny or a right that must be defended.

Why, then, do we need to ask what ABC World News did a few months ago with their story “Clean Energy: Why Is China Ahead of the U.S.?” Why, then, is anyone surprised when they learn about examples such as New Jersey-based solar company Natcore Technology being lured by sizable financial inducements to set up operations in China?

If you want to be at the tip of the spear in advanced energy over the coming decades, you will need a major presence in China. It’s really that simple.

Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

LDK Solar Announces Strategic Financing Agreement With China Development Bank For Up To RMB 60 Billion

XINYU CITY, China and SUNNYVALE, Calif., September 27, 2010 — LDK Solar Co., Ltd. (“LDK Solar”) (NYSE: LDK), a leading manufacturer of multicrystalline solar wafers and PV products, today announced that it has entered into a strategic financing agreement with China Development Bank Corporation (CDB), a joint stock banking corporation wholly owned by the state of China. Under terms of the agreement, CDB will provide up to RMB 60 Billion (or approximately US$8.9 Billion) of credit facilities to LDK Solar over a five-year period. The financings will support LDK Solar`s long-term growth initiatives and corporate development plans. Terms of the individual credit facilities and lending agreements will be subject to CDB`s internal risk management requirements and operational regulations.

“We are very pleased to enter into this strategic financing agreement with CDB which demonstrates their confidence in and support of LDK Solar,” stated Xiaofeng Peng, Chairman and CEO of LDK Solar. “Through our strong partnership with CDB, we will have an enhanced ability to pursue our long-term growth strategy and further strengthen our position within the PV industry market.”

About LDK Solar (NYSE: LDK)
LDK Solar Co., Ltd. (NYSE: LDK) is a leading vertically integrated manufacturer of photovoltaic (PV) products and the world’s largest producer of multicrystalline wafers. LDK Solar manufactures polysilicon, mono and multicrystalline ingots, wafers, modules, and engages in project development activities in selected segments of the PV market. Through its broad product offering of mono and multicrystalline solar wafers and modules, LDK Solar provides its customers with a full spectrum of solutions. LDK Solar’s headquarters and manufacturing facilities are located in Hi-Tech Industrial Park, Xinyu City, Jiangxi Province in the People’s Republic of China. LDK Solar’s office in the United States is located in Sunnyvale, California. For more information about our company and products, please visit www.ldksolar.com

Safe Harbor Statement
This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in this press release are forward-looking statements, including but not limited to, LDK Solar’s ability to raise additional capital to finance its operating activities, the effectiveness, profitability and marketability of its products, the future trading of its securities, the ability of LDK Solar to operate as a public company, the period of time during which its current liquidity will enable LDK Solar to fund its operations, its ability to protect its proprietary information, the general economic and business environment and conditions, the volatility of LDK Solar’s operating results and financial condition, its ability to attract and retain qualified senior management personnel and research and development staff, its ability to timely and efficiently complete its ongoing construction projects, including its polysilicon plants, and other risks and uncertainties disclosed in LDK Solar’s filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and are based on information available to LDK Solar’s management as of the date hereof and on its current expectations, assumptions, estimates and projections about LDK Solar and the solar industry. Actual results may differ materially from the anticipated results because of such and other risks and uncertainties. LDK Solar undertakes no obligation to update forward-looking statements to reflect subsequent events or circumstances, or changes in its expectations, assumptions, estimates and projections except as may be required by law.

For more information contact:
Lisa Laukkanen
The Blueshirt Group for LDK Solar
lisa@blueshirtgroup.com
+1-415-217-4967

Jack Lai
Executive VP and CFO
LDK Solar Co., Ltd.
IR@ldksolar.com
+1- 408-245-8801

China Invested $88 billion in High Speed Rail in 2009

Clean Edge’s 2010 Clean Energy Trends forecasts growth for high-speed rail and renewables
Clean Edge included high-speed rail (HSR) for the first time in its annual Clean Energy Trends report which tracks key developments in clean-energy markets. China is leading the surge in HSR according to Clean Edge:

China’s Ministry of Railways spent $88 billion on HSR projects in 2009 – part of an existing $300 billion plan to expand and connect all of the country’s major cities with a projected 10,000 miles of dedicated HSR lines by 2020.

There will be more high-speed rail added in China over the next five years than the rest of the world combined, says Keith Dierkx, director of IBM’s Global Rail Innovation Center in Beijing. Global HSR manufacturers like Kawasaki Heavy Industries, Alstom, GE Transportation, Siemens, and others have formed joint ventures or partnerships in China. A Canadian-Chinese joint venture, Bombardier Sifang, recently won $4 billion from the Chinese government to manufacture up to 80 high-speed trains. These same companies are developing opportunities in other emerging countries like Brazil, Russia and South Korea.

HSR’s main development challenge is its high price tag. The 800-mile Beijing-to-Shanghai line will cost an estimated $32 billion – in the same cost ballpark as the gargantuan Three Gorges Dam hydroelectric project.

Maglev potential projects in Japan, China, and the United States are also discussed in the Clean Energy Trends.

A United States 17,000 mile high-speed rail system is envisioned. With 30 states committed to renewable energy growth, electric HSR will help the nation be less dependent on oil. Clean Fleet Report forecasts that high-speed rail ridership will exceed one billion within three years, from over 600 million today. Clean Fleet Reports about U.S. High-Speed Rail.

China Also Leads in Renewables Growth

“Despite severe economic conditions, clean-energy markets were able to hold their momentum in 2009 as many regional and federal governments and private corporations focused on clean-energy investments as a way to pull out of the global economic tailspin,” said Ron Pernick, Clean Edge co-founder and managing director. “From the smart grid and energy efficiency to renewable energy generation and advanced battery storage, clean tech continues to be a major driver of regional job growth, economic recovery, and technological competitiveness.”

China is expected to lead RE growth. China could end up spending $440 billion to $660 billion toward its clean-energy build out over the next ten years, according to estimates discussed in the Clean Energy Trends.

The annual Clean Energy Trends report, now in its ninth year, can be downloaded for free.

John Addison publishes the Clean Fleet Report and speaks at conferences. He is the author of the new book – Save Gas, Save the Planet – now selling at Amazon and other booksellers.

First Impressions of China

by Richard T. Stuebi

I just returned from my first trip to China – a whirlwind ten-day tour spanning the cities of Beijing, Shanghai, Guangzhou, Xiamen and Wenling – involving a number of private meetings (some with senior public officials) as well as public presentations at PennWell’s China Power Oil & Gas conference and at a cleantech symposium hosted by the American Chamber of Commerce in Shanghai (AmCham Shanghai) at the annual China International Fair for Investment and Trade.

It is impossible in a brief blog post to give a detailed report on my visit, or to more broadly comment meaningfully about the profound issues confronting the whole world as a result of China’s rise and arrival to world pre-eminence. With this note, I will only attempt to offer some immediately apparent observations related to cleantech issues and opportunities in China that emerged for me from my visit.

Pollution. It is well-known that China is experiencing tremendous environmental challenges, with almost a million Chinese estimated to die each year prematurely from health issues stemming from poor environmental quality. Air visibility can sometimes be less than a mile on what would otherwise be an ordinary hazy humid summer day, although frankly, I was expecting the air pollution to be worse than it was. On the other hand, the water situation shocked me. China’s Ministry of Environmental Protection (formerly known as the State Environmental Protection Adminstration) is said to admit that 60% of the country’s rivers are polluted to the extent that they can’t be used for drinking, and I have heard claims from American sources that a majority of Chinese rivers are so bad that the U.S. EPA would deem their waters to be unacceptable for industrial purposes (much less for drinking). Even at the finest hotels, guests are warned not to drink the tap water, and bottled water is generally provided as part of the room rate. (In case any of you are eating while reading this, I won’t bring up the public toilets.) The other major surprise for me was how much worse the pollution situation was in the countryside than in the cities. Bad air, disgusting water and (especially) litter are much more starkly obvious in the poorer rural areas – a powerful indication of the positive correlation between income/wealth and environmental quality. This reinforced to me how important it is to promote (rather than to retard) economic growth in China, so as to facilitate environmental improvement both for the sake of the Chinese and for the world.

Electricity sector. Although I haven’t investigated in any detail, what I heard suggests to me that the electricity industry in China is on the verge of a financial breakdown, analogous in some ways to the California fiasco of the early 2000’s. Retail electricity prices are subsidized (heavily for large industrial customers), and allowed wholesale prices to generators are fixed. However, coal prices are on the rise, because the mining industry is sufficiently fragmented and privatized that government attempts to set the prices are ineffective. Since the vast majority of the electricity in China is produced from burning coal, the combined effect of increasing coal prices and steady electricity prices is putting a financial squeeze on many generators – so much so that in some cases generator firms are reducing output from their plants. It is unclear how long this can go on before electricity supply inadequacy (already a problem) becomes acute. The financial health of China’s electricity sector ought to be important to the cleantech industry, because a collapse of some type might jeopardize the attainment of the government’s ambitious clean energy aspirations that have been set forth in its Renewable Energy Law.

Manufacturing. In some parts of the U.S. (such as here in Ohio), we like to think we are a manufacturing powerhouse, but China makes us look like pikers. The ascendancy of Chinese manufacturing is nowhere near its peak: with several hundred million people still living in desperate poverty (pre-industrial conditions) in the hinterlands, the prospect of earning US$1000 per year by moving to the city to work in a factory represents a five- or ten-fold increase in income and quality of life. In other words, unless/until fuel prices make transportation of goods prohibitively expensive, stringent emission reduction programs become binding in China to double or triple electricity prices, and/or the yuan-dollar relationship alters dramatically, its huge labor cost advantages can only enable China to further strengthen its already dominant position in global manufacturing – excepting certain niches of production (items with very high shipping costs such as wind turbines, items with limited labor input due to capital-intensive production processes, items still in low-volume early production runs). Outside China, we will generally be relegated to being the technology innovators, the product designers and system integrators, the sellers and distributors, the installers and the service people. Rather than rue that position, let’s embrace it. Because of their production orientation, my speculation is that the Chinese are not so strong in innovation, leaving it to others to be the technology pioneers. After being bombarded by souvenir hawkers and market barterers who make undifferentiated “me-too” offers and compete almost solely on price (or on aggressiveness or loudness), I also conclude that these Chinese will not be the leaders in identifying customer needs as they emerge and evolve, nor in delivering high-value (not price-based) solutions to meet those needs. Those games are for us to play, so let’s go after them.

Capital. It is abundantly clear to any observer on the street that China is awash in money. In Beijing and Shanghai, designer consumer goods and high-end automobiles are not ubiquitous, but they are evident. (In Xiamen, I saw an Audi A8L – a $120,000 vehicle in the U.S. – with police lights on top of the roof. Nice cop car! Does your town have a municipal budget that would support a fleet including one?) I met venture capitalists looking for deals in China, as well as a bevy of consultants who facilitate technology transfer and commercialization into China. However, I didn’t see much evidence of interest in foreign investment by Chinese parties. For the cleantech revolution to be amped up, we need to make the case that this Chinese capital is well-served being deployed outside China – not only for good financial returns, but to generate more future opportunities for Chinese domestic investment.

Inefficiencies. Centrally-planned economies (e.g., the former Soviet Union) are legendary for begetting ridiculous systemic inefficiencies. The Chinese economy is quite a bit different – the central government indeed establishes absolute policies, but only at a very general level, providing minimal specific guidance and instead allowing individual actors almost complete autonomy to comply within the bounds of what’s permitted – but the inefficiencies are nevertheless astounding. I speculate that the inefficiencies are driven more by the explosive growth of the economy – averaging a mind-boggling 9.9% per year for a 30 year period since 1978 – which propels businesses and individuals to act quickly, with much replication and little reflection or innovation. A vivid illustration of this is the abundance of highly inefficient mini air conditioning units (rather than more efficient central air conditioning systems) in relatively new high-rise buildings, presumably because they’re cheap and quick and easy to replicate. The resulting inefficiencies also reach into the social realm: schedules are set late, remain fluid and dynamic up until the event, and tardiness is common. The Chinese way of doing things thus requires some acclimation for those of us accustomed to considerable structure and discipline.

Urban mobility. Reflecting the economic explosion, people are constantly trying to get somewhere. Even though the big cities (especially Shanghai and Beijing) have reasonably well-developed public transportation systems (including modern subway systems), and even though the per capita level of car ownership in China is only less than 10% of what it is in the U.S. (reflecting the amazing fact that private auto ownership was forbidden in China until the mid-1990’s), traffic is truly chaotic in urban areas. It is said that there used to be bicycles everywhere in China, and while many still remain (often abiding by well-designed separated bicycle lanes), many bicycles appear to have been replaced and superseded by electric scooters that are clean and silent. (By the way, the silence isn’t always a good thing, as any aimless and unattentive walker is under a constant threat of being steamrolled by an aggressively-driven scooter stealthily zooming in from behind.) It appears to me that “rules of the road” is an oxymoronic concept in China, as vehicles undertake passes in the most imprudent circumstances and drive on the left or on the right almost on discretion. (Of note, traffic lights are world-class: many have timers indicating the number of seconds remaining for a green light or red light.) Taxis are about as ubiquitous as two-wheeled vehicles and are unbelievably cheap – an hour ride of perhaps 30 miles might cost the equivalent of US$20 – but you’ll never complain about a Manhattan cab ride again. As a consequence, drivers and pedestrians alike must be vigilant to protect their lives. And, it is a good thing for all concerned that foreigners are not allowed to drive; when you rent a car in China, you also get a Chinese driver, who is well-accustomed to seeing driving behaviors evidenced in the U.S. only at race tracks and demolition derbies.

Air service. Air travel in the U.S. has nothing on China. I was impressed with the very new and modern airport terminals in all of the cities I visited. The primary domestic airlines (Air China (LSE: AIRC), China Southern (NYSE: ZNH), etc.) have thoroughly modern Boeing (NYSE: BA) and Airbus fleets – no Soviet-era Tupolevs here anymore, no reason to worry about making it alive to your destination. Fares are reasonable – and they still serve meals (though Chinese airline food is no better than the U.S. airline food of days past).

Language. I am no linguistic expert. I struggle with English, and my high school experience in studying French convinced me that I do not possess the language gene. But, since it doesn’t use an alphabet and is incredibly reliant in verbal communication upon imperceptible shifts of tone, Chinese (Mandarin) is a whole ‘nother level of challenge. I am not raising this issue as an interesting or amusing tangent, but rather because the language barrier (and overcoming it more satisfactorily) will be truly fundamental in determining the future success of Chinese-American relations. As the work of Maturana and Varela shows compellingly, humans live in language: that is, they make assessments of the world and create new possibilities only through language. Without sharing a language, it is simply not possible to come to agreement on the current situation or to invent directions for beneficial action. In my time in China, I experienced a deficit of good translators – more properly termed, interpreters – who were strong in both Mandarin and English, and who were also knowledgeable enough about the subject matter to convey the fully nuanced intentions of the speaker. (To illustrate, I would hear a Chinese speaker utter 60 seconds of Mandarin, and the English translation would hesitantly be passed on, usually some banal statement like: “China uses a lot of energy”. Come on — I know in his minute of talking he must have said something more insightful and detailed that that!) If we’re going to enable massive/rapid cleantech transfer into and adoption within China, there’s going to have to be an order of magnitude expansion of cleantech-knowledgeable people that also possess high degrees of English-Mandarin fluency.

As Mark Twain once was alleged to have said (though in actuality the maxim was coined by the French philosopher Blaise Pascal), “I have made this letter longer than usual, only because I have not had time to make it shorter.” I apologize for my rambling incoherence. I’m still digesting what I observed from my first visit to China, with an aim towards developing and executing an approach to work more systematically with/in China on cleantech opportunities. The above is merely my first transcription of my emerging thoughts. I don’t know what it all means yet, but I do know that there’s something pretty important in here somewhere.

One final anecdote to wrap up: during my trip, I had the pleasure of being able to connect personally with the U.S. Assistant Secretary of Commerce David Bohigan, as he happened to coincidentally be leading a group of U.S. business people on a clean energy trade mission to China and India. As Mr. Bohigan noted to me, the relationship with China and the need for clean energy will be the two most dominant forces shaping the U.S. economy in the 21st Century.

So, at least one bit of clarity has so far pierced the fog in my mind: it is incumbent upon the U.S. cleantech community to engage meaningfully with/in China, as it is there that the largest opportunities both for wealth creation and for environmental improvement lie.

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.