View from the White House on Energy Innovation

by Richard T. Stuebi

On behalf of the President of the Cleveland Foundation Ronn Richard, I was privileged to attend an all-day bull session on May 7 hosted by the White House on energy innovation. With support from the Kauffman Foundation, the White House convened this meeting to spur brainstorming among people who participate across the cleantech spectrum, presumably to surface actions that can dramatically increase the velocity and success of energy innovation.

Alas, I can’t say that I saw evidence of any concrete next steps, but I did hear a number of interesting comments from the morning sessions at the meeting:

Diana Farrell, Deputy Director of the National Economic Council: Throughout U.S. history, major acts can actually spawn and renew markets, rather than thwart them. We are at that point today with energy: energy and environmental debates have grown stale and a new policy paradigm is necessary to cut through them. Oil price spikes have preceded 10 of the last 11 U.S. recessions, so we need to eliminate this vulnerability. The history of great nations shows an ability to anticipate crises before they become too critical. But, as important as policy reforms are, it is not enough for economic robustness: entrepreneurs and innovation are essential.

Dan Reicher, Director of Climate Change and Energy Initiatives at Google (NASDAQ: GOOG): Google is working on all three critical dimensions of cleantech: capital, technology and policy. While Google’s actions on capital and technology for cleantech are well-known, their work on policy is aimed at accumulating and providing more and better information for policy-makers to set better policies.

Desh Deshpande, serial entrepreneur, including Chairman of A123 Systems (NASDAQ: AONE): In cleantech, the center of gravity for innovation is not at the national laboratories, and is reverting away from the private sector, instead focusing in the universities. The big challenge is not so much inadequate amount of funding on cleantech innovation, but rather inefficient commercial capture of the innovation that actually happens.

Carl Schramm, President of the Kauffman Foundation: Lots of challenges ahead for cleantech entrepreneurship. Angel investors as well as venture firms stand to be severely punished by proposed regulations aiming to “reform” hedge funds. Businesses of all sizes are becoming too reliant on the government, blunting their intimacy with actual market needs. The link between university and commercialization is broken and needs to be reset, as the rate of new business spin-outs from universities is plummeting. To help combat these challenges, Kauffman is sponsoring an Energy Innovation Network, which aims to help “connect the dots” in faciliating entrepreneurship in the cleantech sector.

Tom Baruch, Managing Director at CMEA: Universities (not corporations) will be the center of innovation for the foreseeable future. Successful cleantech business models will need to be much more capital efficient than many of the most prominent cases to date. Cleantech entrepreneurs cannot assume any “green premium”: their products/services must stand on their own to deliver real economic value to paying customers.

Dr. Michael Crow, President of Arizona State University: Universities can no longer afford to suffer from the delusion that being smarter is sufficient to be the best. University excellence in the future will be defined by five mantras: (1) local relevance, (2) speed, (3) connectivity, both within university and to outside, (4) entrepreneurship, and (5) intellectual innovation.

Dr. Yet-Ming Chiang, Founder of A123 Systems and Professor of Materials Science and Engineering at MIT: True freedom to innovate at a university only occurs after professors gain tenure. To dramatically increase innovation, universities must restructure how they evaluate professors for tenure: at MIT, new products/services are now part of the review, but jobs created should also be a criterion. Fast-tracking of green cards for promising talent is also critical: over the past 5 years, 86% of foreign graduate students at MIT indicated a desire to stay in the U.S., but only 56% have stayed – and the 44% that left departed mainly because of an inability to stay, not because they didn’t want to stay, in the U.S.

As interesting as these comments from the morning discussions were, the workshop in the afternoon got bogged down in very wonky policy topics that frankly bored me.

And, also interesting was who was NOT at the workshop: little or no representation from big energy companies (petroleum or utilities). Is the White House (along with Kauffman) saying that incumbent energy players are not viewed as part of the cleantech solution?

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.

Thoughts on a Clean Energy Development Authority

by Richard T. Stuebi

As a class, new energy technologies have proven to be quite difficult to successfully commercialize. Often, they must surmount substantial technical, scientific and engineering risks to get from concept to the market. And, to prove at scale and expand to broad application, very large sums of capital are typically required.

Accordingly, many private sector capital sources — venture capitalists, private equity firms, corporations, and banks — are wary of funding new energy technologies on their own. Put another way, for the clean energy economy to emerge in a major way in the coming decades, the public sector will have to participate in new and significant ways in financing the development and deployment of new energy technologies. Innovative public-private partnerships in the capital arena will be essential. And, given the massive amount of dollars required, these programs will have to be Federal to score any major successes.

For the most part, Federal engagement in the financing of new energy has been historically limited to various subsidies embedded in the tax code, such as the production tax credit for large-scale renewable energy projects or investment tax credits for customer-sited renewable energy or energy efficiency investments.

More recently, stemming from the Energy Policy Act of 2005, the Department of Energy has been authorized to provide loan guarantees underlying private sector loans for projects employing new energy technologies.

Although somewhat effective, clearly the Federal programs to complement the private sector in financing new energy technology development and deployment have not had impact anywhere near the magnitude that pretty much everyone but guardians of the status quo desires.

To that end, both the Markey-Waxman bill that passed the House last year and the Bingaman bill being floated in the Senate include the creation of a Clean Energy Development Administration (CEDA), whose purpose would be to provide debt capacity that is otherwise inaccessible to innovative energy technologies.

Ordinarily, I’m not a big fan of new government bureaucracies. Indeed, a CEDA might not be necessary if the pricing signals for clean energy were set in a manner that induced the appropriate level of investment in RD&D. However, without political will to take on energy pricing — i.e., taxes and carbon policies — it’s clear that finance capacity for clean energy is currently inadequate, and that only a player of the heft of the Federal government can make any meaningful dent in improving the situation.

Perhaps Wall Street agrees as well. Two finance industry leaders — Eric Fornell, the Vice Chairman of Investment Banking for J.P. Morgan Chase (NYSE: JPM), and Mark Heesen, the President of the National Venture Capital Association — recently wrote a thoughtful article providing both support and words of wisdom in establishing a CEDA.

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.

More Greenbacks for Greentech

By John Addison – original post at Clean Fleet Report

Investments Grow for Electric Cars, Energy Storage, Smart Grid

More venture capital will be invested in innovative greentech firms and more IPOs will happen in 2010 predict some of the world’s smartest venture capitalists and investment bankers at the Venture Summit Silicon Valley. In most circles, greentech is called cleantech, but with the 2009 IPO of A123 leading to a billion dollar valuation, venture capitalists are seeing green.

Cleantech encompasses the growing array of technology, services, and corporations that provide for a future with lower greenhouse gas emissions: energy efficiency, renewable energy, electric cars, smart grids, pure water, and even next generation building materials.

Continued investment is needed to bring us the next generation of batteries, solid state lighting, smart grid components, electric cars, lighter and stronger materials, and solar power so efficient that it makes no sense to build another coal power plant. Greentech is now 25 percent of venture capital investment reported Eric Wesoff, Senior Analyst, Greentech Media. Greentech has become the third major area of investing for the venture capital community that has focused on information technology and life sciences.

2010 IPO and M&A Growth

Forty IPOs of venture-backed firms were predicted for 2010, up from less than ten in 2009. More importantly, 600 venture-backed firms are likely to be purchased in 2010 through mergers and acquisitions (M&A) by large companies eager to expand their total offerings. The AlwaysOn Venture Summit included top private equity executives from Google, Qualcomm, Motorola, and dozens of companies with a history of acquisition. Hallways and lunch tables overflowed with investors, entrepreneurs, and corporate giants pitching, listening, and networking.

The severity of the recent recession has left brilliant ideas unfunded, lithium battery plants delayed, and gigawatts of renewable energy plants without project financing. Innovators at early stages depend of private equity. Venture capitalist raise billions in funds from large university endowments and pension plans who in turn suffered lost billions in the stock market and real estate downturn. Successful 2010 IPOs plus M&A will generate cash for VCs and bring new endowment and pension funds.

Lithium battery maker A123 Systems (AONE) is a poster-child of cleantech IPO success. This year it raised $391 million with an IPO priced higher than expected. A123 has never made money, only had $68 million of revenue last year, and will have less than $90 million revenue this year. Its stock still trades above the offering price with over a billion in market capitalization, even though Chrysler cancelled electric vehicle plans that include A123 batteries. Investors continue to be optimistic about A123 in markets like power tools, grid storage, and automotive.

A123 CFO Mike Rubin explained that the IPO provided important credibility with the battery maker’s major customers. It also gives A123 a strong balance sheet and the ability to fund more R&D and weather difficulties.

Yes, government funding and loans are also critical to American leadership in cleantech. Headquartered in Massachusetts and founded in 2001, A123 was funded initially with a $100,000 grant from the U.S. Department of Energy.

In 2010, it may be IPO offerings like Tesla or Silver Springs Networks that get cleantech investors excited. Stay tuned.

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.