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New Optimism For a Cleantech Future

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

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

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

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

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

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

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

Venture capital spikes in Internet and cleantech

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

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

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

Gartner hype cycle

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

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

Powershares PZD fund performance

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

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

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

Chasm model

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

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

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

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

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

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

The Quiet Clean Mining Revolution

Few industries have got the black eye, literally and metaphorically, of mining.

After centuries of environmental effects ranging from toxic emissions to unsightly tailings ponds, acid mine drainage, massive energy consumption and other impacts, mining is slowly cleaning up its act.

Why? Mostly because new clean technologies are increasing industrial efficiencies. They’re lowering mining companies’ power needs. And they’re even helping reduce water requirements, and/or remediating the produced water and mines of years past that are now leaching toxins. And that’s translating into cost savings for mining companies, which are being held increasingly accountable for their environmental impacts and are looking for ways to minimize the expenses of both the production phase of their operations, and reclamation (i.e. the mandated end-of-life cleanup expenses associated with mining in many jurisdictions, now).

In other words, now that it’s starting to be less expensive on net for mining companies to be clean, they’re starting to move in that direction.

Here’s a look at some selected companies at the forefront of new, clean processes in mining today.

New production
Mining project developer American Manganese is preparing to produce electrolytic manganese, used in everything from steel to batteries, from low-grade ore in Arizona.

And it plans to do so at vastly lower costs than the Chinese companies that currently dominate its industry.

How is the company hoping to do so? A lower-power production process intended to use only about six percent of the energy required by the high temperature roasting of conventional electrolytic manganese production. It also plans to produce power onsite from heat exchangers harvesting energy from the production of sulfur dioxide—performed by burning elemental sulfur. And it intends to reduce its water requirements by using precipitation to remove contaminants, with closed-loop water techniques that also involve nanofiltration.

The company also claims its tailings (the output of the process) will be solid and inert, benign enough to be placed right back into the ground with no further processing. No open pool tailing ponds.

Too good to be true? Kachan & Co. just published a report probing the American Manganese process, assessing its potential market impact and what other mining companies might learn from the company.

Toxin remediation and resource recovery
Sister companies BacTech Environmental and REBgold of Toronto, Canada are using a patented biological process to remediate toxins and recover gold, respectively, at a number of sites around the world.

The companies’ BACOX process uses vast amounts of naturally occurring bacteria—which the companies claim are harmless to humans and the environment—in bioreactors to liberate precious and base metals from difficult to treat ores, concentrates and tailings. By providing the bacteria with optimal conditions in closed reactors, BacTech and REBgold say they’re capable of oxidizing sulphides in as little as 5-6 days, as opposed to the many years it normally takes in their natural habitat. The process is also used to free gold and other metals like copper, nickel, zinc, cobalt and molybdenum, according to the company.

The recovery of such valuable materials allows BacTech to offer mine tailing remediation services at no charge to governments, and for REBgold to pursue acquiring and developing economic interests in gold mines, including existing operations in Australia, Tasmania and China.

AMD cleanup
Historically, at the end of production, many mines were abandoned with little environmental consideration. Today, heavy metals remain in tailings piles and in runoff from abandoned mines. Metals such as copper, lead, zinc, and mercury can seep into groundwater. Precipitation percolating through rocks can react with sulfur, forming sulfuric acid and leaching out heavy metals and significantly changing the pH of the water.

Water draining from these tailings piles is referred to as acid mine drainage (AMD). The acidity of the water plus the high metal concentrations can be deadly to animals and plants. Acid mine drainage coats waterways with iron hydroxide, giving impacted bodies of water an orange color.

Streams affected by acid mine drainage (AMD), also known as acid rock drainage (ARD). One of the most visible, but certainly not the only, toxin escaping from abandoned and production mining sites. Arsenic is another large problem.

BioteQ Environmental Technologies of Vancouver, Canada is one of a handful of companies specializing in remediation of AMD. It has built 14 industrial water treatment plants ranging in size up to 25,000 m3/day at mine sites in Canada, the U.S., Mexico, Australia, and China. It uses sulfide precipitation processes for metal removal and recovery, as well as lime treatment.

Lime is sometimes criticized for creating solid waste sludge, but it works. Other companies pursue reverse osmosis filtration or other techniques, usually at higher costs and lower rates. Still others attempt to fill in abandoned mines with water, clay slurry or other compounds to eliminate the source of AMD in the first place.

There are scores of new companies forming globally in water treatment, commercially inspired by opportunities associated with the problem of AMD and other mining-related produced water issues. The water-intensive oil sands refining in Northern Canada is also driving important innovation in water technology, as described in a Kachan & Co. report in conjunction with the Artemis Group that introduces corporate executives to the water industry. More details on that report here.

To many, cleantech is still synonymous with renewable energy. But air & environment and clean industry, where clean mining technologies are categorized, remain two important sub-categories of the over-arching cleantech sector. And few industries could benefit from clean technology innovation more than mining. We at Kachan & Co., with offices in Vancouver, Canada—one of the hotbeds of global mining—are encouraged by what we see going on behind the scenes.

After hundreds of years of poor environmental stewardship, and in a world with more watchful eyes than ever, one could argue the mining industry has nowhere to go but up.

This article was originally published here. Reposted by permission.

Into the Blue Yonder

At the invitation of Paul O’Callaghan, the CEO of the water consultancy O2 Environmental, I attended the Blue Tech Forum in San Francisco in early June to get a deeper perspective on water technology innovation.  It was well worth the cross-country trip, even for just a one-day event.

Paul’s opening remarks summarized the state of the water sector very succinctly.  Some key figures:  over 90% of the $350 billion annually spent on water worldwide – about half associated with capital equipment, half on operating expenses – comes from municipal/urban water treatment systems, yet less than 10% of water consumption can be attributed to municipal/urban use.  In contrast, agriculture accounts for 70% of global water use but only 2% of water expenditures, while energy production and other industrial activity accounts for 22% of global water consumption and only 6% of the financial outlays. 

Put bluntly, small point-of-use water consumers – individuals and non-industrial enterprises – heavily subsidize the massive quantities of water used by the producers of food, energy and other goods.  Such a major pricing distortion can only lead to massive unintended consequences and inefficiencies in the global economy.

This is just for the established markets for water, saying nothing about the billions of people on the planet who have no access to water, or to the 90% of wastewater that gets dumped into oceans untreated.

Although the water sector has historically been slow to innovate, things are changing:  according to Elsevier, water research has been growing at a 30% annual rate since 2000.  In Paul’s view, there are three themes that are guiding water innovation: 

  1. Realizing that all water issues are local.  Unless pure distilled H2O, water is far from homogenous.  Every water stream encountered in the real-world has different chemistries and thus has different water treatment considerations, requiring different technical solutions.  Systems to move and manage water must be done in the context of a specific geography, terrain and climate.
  2. Rethinking efficiency.  Paul noted Amory Lovins’ aphorism that many of us often seek to cut butter with a chain-saw, and then search for ways to improve the efficiency of the chain-saw, rather than looking for a butter knife.  In the case of water systems worldwide, there appear to be lots of chain-saws cutting butter.
  3. Providing water services in unorthodox ways.  Is water really needed to flush a toilet or to cool an engine or many other things for which we use water?  Can these functions be done with something else than water? 

The balance of the morning was organized as a venue for companies doing some of the more interesting research and commercialization in new water technologies to tell their stories.  Sessions were structured around four hot areas of water innovation:   (1) produced water and decentralized treatment/re-use, (2) smart water management and infrastructure, (3) advanced desalination, and (4) energy/resource recovery from wastewater.   For each of these four areas, four companies pre-selected by the forum’s advisory panel presented their novel technologies and strategies to penetrate the marketplace.

I’m a bit jaded, as I attend many conferences at which ventures make their pitches to prospective investors in raising capital.  I am often bored or easily distracted at such events, as many of the presenters fail to capture my attention.  However, I would rate Blue Tech very highly; the advisory panel did an excellent job screening the companies and surfacing some very promising opportunities for big impact and good financial returns. 

Among the companies I particularly liked were (in alphabetical order):   Hydration Technology Innovations (forward osmosis technology for desalination), Soane Energy (polymer monolayers for treating water associated with oil/gas production) and Zeropex (reversible generator/compressor to better manage distributed water systems).  HTI won the “disrupt-o-meter” award as selected by the audience, while Pasteurization Technology Group (technology integrator and project developer for wastewater disinfection and electricity production at water treatment plants) won the award for best go-to-market strategy.

The balance of the afternoon was spent discussing the dynamics of the water industry from various standpoints:  water utilities such as American Water (NYSE: AWK), large corporations serving the water market such as General Electric (NYSE: GE) and Veolia (NYSE:  VIA), venture investors with interests in water such as VantagePoint Venture Partners, Emerald Technology Ventures and XPV Capital

Albeit with different nuances and emphases, all agreed that water technology represented a challenging but nevertheless enormous investment opportunity for the coming decades, and that the richness of innovation and entrepreneurship in water was improving dramatically and rapidly.

Everyone was feeling pretty good about things in the water arena…and then Dennis Bushnell, Chief Scientist at NASA Langley, provided a quite amazing closing keynote talk that defies description.  I’ve written previously about the bearish resource views of Jeremy Grantham, and all I can say is that Dr. Bushnell makes Grantham sound like a ridiculous optimist.  Dr. Bushnell’s remarks went far beyond implications about the water industry to nothing less than the future of the human race and Planet Earth.  His fascinating but grim commentary merits a separate posting at a later date.  By no means did Dr. Bushnell’s speech detract from the Forum, but the conclusions he offered were so dire that it generated a wave of awe-struck head-shaking and nervous giggling from the audience, and sent us all eagerly into the cocktail reception seeking refuge from stronger stuff than clean water.

Water Water Everywhere

by Richard T. Stuebi

One of the fastest growing “themes” of the cleantech sector is water. While clean energy gets the most attention, clean water is also becoming a high priority. According to Richard Smalley, the late Nobel laureate and nanotech pioneer from Rice University, water trailed only energy on the list of humanity’s top challenges over the coming decades.

Like all things cleantech, a major difficulty has been trying to earn good investment returns from innovations in the water sector. And so it is that the Water Innovations Alliance was formed, to serve as an industry association to promote the emergence of a vibrant entrepreneurial sector in water technologies.

In May, the Alliance held its annual conference in Dayton Ohio. I attended, and heard a number of good presentations providing some interesting tidbits on the water sector.

In his overview, Mark Modzelewski (the Executive Director of the Alliance) gave some eye-opening statistics. Only 3% of the water on earth is freshwater, and little of that small sliver is accessible for human use, with 1.5 billion people globally not having access. By his measures, water is the third largest industry on earth, representing $550 billion of revenues. Modzelewski cited data indicating that 75% of U.S. water infrastructure will need to be replaced, at a cost of “hundreds of billions of dollars.” Soberly, he noted that “the way we move, treat and filter water has changed little since the time of Julius Caesar: we move water through trenches and tubes, we force water through tiny holes to clean it, and we put poisons in water to kill other poisonous things.” Unfortunately, innovation is not happening at the required pace: only $130 million in venture capital was placed in 33 water deals in 2009, with minimal corporate, academic and public sector resources and centers for water R&D.

Paul Gagligardo of American Water (NYSE: AWK) noted in his presentation the huge size of the water technology market: $172 billion of water-related capital expenditures in 2009, with $30-60 billion per year expected in North America over the next several years. Alas, he also noted how balkanized the demand-side of the market is, with 52,000 community water systems and 155,000 non-community water systems in the U.S.

Notwithstanding the difficulties facing companies trying to profit from water technology innovation, a number of presentations from leading firms hinted at the opportunities.

Peter Williams, the CTO of Big Green Innovations at IBM (NYSE: IBM), described IBM’s activities to parallel the smart grid in the water sector. In his presentation, Williams noted that 20-25% of all treated water is lost through leaks, and moving/treating water consumes 3-5% of all energy in the U.S. — implying that smarter water management represents an enormous economic and energy opportunity area.

In his presentation, Ed Hackney of United Water — a subsidiary of Suez Environnement (Paris: SEV, Brussels: SEVB) — took the smart water grid theme further, by noting the need to push intelligence from already-sophisticated treatment centers through the relatively-dumb network.

Probably the biggest splash made at the conference was by Veolia (Paris: VIE, NYSE: VE), a major sponsor with a significant presence, including several speakers. It’s clear that Veolia is trying to show itself as the leader in the water technology field. As profiled in a presentation made by Finn Nielsen, the Chairman of VWS (Veolia Water Systems) North America, Veolia has created the Veolia Innovation Accelerator to work closely with start-up companies on their water treatment technologies to speed up the pace of commercial adoption, by helping such companies validate/improve their technologies and introduce them more rapidly to the marketplace through Veolia’s vast channels in the water industry.

Other presentations from the conference are available, and are worth perusing to gain a better handle on this important but often-overlooked segment of the cleantech universe.

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.

Making the Great Lakes Great Again

by Richard T. Stuebi

For as long as I can remember, Lake Erie — and by extension, all of the Great Lakes of North America — symbolized water pollution. Sure, it was much worse 40 years ago, when the Cuyahoga River in downtown Cleveland caught fire, but the reputation lingers. (Remember the “Swill” skit on Saturday Night Live in the late ’70s?) Although the Great Lakes are a boater’s and fisher’s haven, for many people (myself included), the thought of bathing in the waters or drinking them untreated remains pretty unappealing.

This is truly a pity for the Midwest, because the Great Lakes represents one of the most fundamental assets that a region can offer: fresh water in enormous quantities. For those who’ve never seen the Great Lakes, they are misnamed: these are inland seas, not lakes. The Great Lakes hold 20% of the world’s freshwater. Pause and think about that for a minute.

In recent decades, there has been an increase in attention paid to remediating the Great Lakes. A unique multi-government collaboration launched in 1955, the Great Lakes Commission was formed to oversee issues spanning the multiple U.S. states and Canadian provinces depending upon the Great Lakes. Founded 40 years ago, the Alliance for the Great Lakes was an early voice advocating environmental improvement in the Great Lakes. Most substantively, the U.S. EPA leads the Great Lakes Restoration Initiative, which targets “the most significant problems in the region, including invasive aquatic species, non-point source pollution, and contaminated sediment.”

Recently, the Obama Administration announced a five-year $2.2 billion blueprint for cleaning up the Great Lakes, which aims by 2014 to (1) finish work at five “toxic hot spots” that have been known as problematic for two decades, (2) reduce the rate of new invasive species by 40%, (3) decrease phosphorous runoff measurably, and (4) protect about 100,000 wetland acres. (See article from Chicago Tribune.)

As the central feature of the industrial North American Midwest, which gave birth to the industrial era of the 20th Century, the Great Lakes were long taken advantage of — often without much respect — to achieve economic growth, increase standards of living, win wars, and establish the U.S. as the unparalleled leader in the world. $2.2 billion may sound like a lot of money, but it’s due time we give back to the Great Lakes, for all that they’ve given us.

Richard T. Stuebi is a founding principal of 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.