siliconindia

Investment The Evolution Of 'Tech' In Cleantech

Author: Dharmesh Thakker
VP, Advanced Technology Ventures
Investment The Evolution Of 'Tech' In Cleantech -By-Dharmesh Thakker
Cleantech 1.0 from 2004-08 was dominated by solar and bio-fuel startups, founded by semiconductor and biotech execs in many cases. Massive global energy markets ($6 trillion worldwide energy spend, $300 billion U.S. electricity markets, $20 billion India solar mission), rising energy costs, favorable regulatory landscape, and technology maturity were driving the first generation of startups. By contrast, there seem to be a growing number of software and networking gurus frequenting cleantech entrepreneur circles and energy efficiency startups these days. At Advanced Technology Ventures, where I focus on cleantech and software startups, we have had the benefit of witnessing this trend firsthand, given our involvement in cleantech since 2004, and believe this mix is healthy for the overall cleantech sector.

In 2008, at the peak of the cleantech investment cycle, about $2.5 billion in equity was invested in solar energy alone with over 10 venture backed companies raising over $100 million each. Bio-fuel figures were not far behind at over $900 million in investments. Part of the reason behind these staggering figures is the use of expensive equity dollars to fill-in for virtually nonexistent project finance and debt. Using simple math, we’d need to see 15-20 multi-billion dollar IPOs in the next few years to produce venture-like returns. Moreover, startups need not only a technology based advantage but also significant economies of scale (and a few more billion dollars) to be cost competitive with First Solar and Chinese PV players in the solar area for example, or else they risk going down the path of ‘profitless prosperity’. In short, a few winners will emerge, but until robust project finance and debt markets emerge, it will be largely a tough space except for those that invested very early in these areas.

Investment Areas

Learning from our portfolio of 11 cleantech companies, we have refined our thesis to focus on two key areas: downstream technologies for accelerated renewables deployment, and demand side management.

The billions that have been invested in core research have prepared several renewables for prime time commercialization. At the same time, the need for renewables is rising by the day, driven by rising costs and carbon footprint of fossil fuel sources, and state and potential federal Renewable Portfolio Standards. Recent events like the Gulf oil spill only exacerbate the problem. However, widespread commercialization has been inhibited largely by the lack of grid parity (price competitive with coal) without subsidies, and intermittency of most renewables that requires grid upgrades. Solar panels, for instance, have seen prices decline from $5/W a couple of years ago to less than $2 now, yet the balance of system (BOS) costs including labor, racking, inverters are still hovering around $4-5/W and continue to affect the adoption rate. We find innovations such as micro-inverters, DC-DC optimizers, innovative racking systems that can lower the BOS costs for solar energy, as the critical missing link to help solar energy achieve grid-parity. Similarly, wind has the potential to be 20 percent of our energy supply by 2030 and a $100+ billion opportunity annually. Components, control systems, and predictive analytics that reduce downtime and can enhance project returns, help multiply wind energy’s footprint. More broadly speaking, grid storage technologies that smooth out the effect of intermittent renewables on the grid are another area of strong interest. As initial deployment of many of these technologies in the U.S. and Europe mitigates commercialization risk, they can be applied to address the massive market opportunity in India and China as well.

Demand Side Management, our other investment theme, includes both energy efficiency and peak load management (like smart grid technologies and demand response). This is where we see tremendous activity lately from Silicon Valley software and networking veterans. After all, if you’ve built your career building large scale networking infrastructure at Cisco, enterprise-class apps at Oracle, or complex analytics at Google, it’s natural to use your expertise in building wide-area and local-area networks for the smart grid and energy apps for utilities, businesses, and consumers. From an investor standpoint, the relative capital efficiency, potential to achieve attractive software-like operating margins, and potential M&A interest from the IT majors as an alternate path to an IPO, align well with the venture model. In this sector, we think the low hanging fruit is in HVAC and lighting controls with a specific focus on commercial and industrial sectors. Lighting and HVAC consume over 50 percent of the $80+ billion in commercial energy usage in the U.S., and energy efficiency via intelligent controls ranks high on the CFO’s list driven by attractive ROI, bottomline savings, and compliance drivers. Additionally, CIOs are increasingly faced with enhancing the transactions per Watt in addition to transactions per dollar from their ever-growing datacenter footprint. Holistic monitoring, modeling, and control software solutions hold great promise in reducing energy usage while regulating heat density and enhancing server performance as well.

Other related areas we dabble in include transportation and engine efficiency (a somewhat contrarian thesis to electric vehicles) and recycling. There is an attractive amount of cash in trash as we have discovered – all the way from recycling the 130 million cell phone and portable electronics that are retired in the U.S. every year and creating a market in developing countries, to taking landfill gas for energy generation. How sustainable the underlying technology is remains to be seen, but these business models and operating margins are interesting enough to consider.

New Areas of Opportunity for
Innovation


The wild-card in our mind is the application layer for the smart grid. When core routers and other Internet infrastructure were being rolled out worldwide in the ’90s, who could have guessed that killer apps would revolve around e-commerce, social media, and online gaming? We are in the first cycle of rolling out effectively a two way communications infrastructure on our utility grid, aka smart grid. Data mining applications that leverage granular data from smart meters, planning and decision control systems for utilities, advertising platforms for appliance makers and energy conservation promotional programs for consumers all present sizeable opportunities that an application ecosystem can address.

A classic example in this arena is the residential energy efficiency opportunity. Over $225 billion in energy is consumed every year in the U.S. by homes and small businesses, and over $45 billion of that can be avoided by simple conservation measures. Over two dozen startups, the last time I checked, in the home area energy management space believe that consumers will opt for the ‘right thing to do’. However, conservation has historically been at odds with convenience and comfort. Whether you believe that homeowners will buy $300 fancy displays from Best Buy or expect the local utility to subsidize them, it is still hard to see consumers watch their energy usage constantly and change their behavior to save $20-30/month. I’d argue the mean-time-to-kitchen-drawer is probably in weeks, if not days as the novelty wears off. At the same time, consumers have continued to spend hours a day on gaming and social media sites and are driven by their virtual image or online avatars. Applications that can crack the code of aligning energy efficiency with consumers’ online image or incentivize them perhaps with virtual currency can start to move the needle on residential energy efficiency. I haven’t seen that yet, but feel strongly that this class of smart apps at the intersection of energy efficiency, business, and social media, a cleantech 2.5 cycle if you will, is right around the corner.
Previous  article
Next article
 
Write your comment now

Email    Password: 
Don't have SiliconIndia account? Sign up    Forgot your password? Reset
  Cancel
Reader's comments(2)
1: From: Mrs. Mary David

This mail may be a surprise to you because you did not give me the permission to do so and neither do you know me but before I tell you about myself I want you to please forgive me for sending this mail without your permission. I am writing this letter in confidence believing that if it is the will of God for you to help me and my family, God almighty will bless and reward you abundantly. I need an honest and trust worthy person like you to entrust this huge transfer project unto.

My name is Mrs. Mary David, The Branch Manager of a Financial Institution. I am a Ghanaian married with 3 kids. I am writing to solicit your assistance in the transfer of US$7,500,000.00 Dollars. This fund is the excess of what my branch in which I am the manager made as profit last year (i.e. 2010 financial year). I have already submitted an annual report for that year to my head office in Accra-Ghana as I have watched with keen interest as they will never know of this excess. I have since, placed this amount of US$7,500,000.00 Dollars on an Escrow Coded account without a beneficiary (Anonymous) to avoid trace.

As an officer of the bank, I cannot be directly connected to this money thus I am impelled to request for your assistance to receive this money into your bank account on my behalf. I agree that 40% of this money will be for you as a foreign partner, in respect to the provision of a foreign account, and 60% would be for me. I do need to stress that there are practically no risk involved in this. It's going to be a bank-to-bank transfer. All I need from you is to stand as the original depositor of this fund so that the fund can be transferred to your account.

If you accept this offer, I will appreciate your timely response to me. This is why and only reason why I contacted you, I am willing to go into partnership investment with you owing to your wealth of experience, So please if you are interested to assist on this venture kindly contact me back for a brief discussion on how to proceed.

All correspondence must be via my private E-mail (dmary4love1@yahoo.fr) for obvious security reasons.

Best regards,
Mrs. Mary David.
Posted by: mary lovely david - Monday 26th, September 2011
2: Hi my dear,
My name is Mounace, i would like to establish a true relationship with you in one love. please send email to me at (mounace43@yahoo.com) i will reply to you with my picture and tell you more about myself. thanks and remain blessed for me,
Your new friend Mounace
Posted by: mounace love love - Thursday 09th, June 2011
More articles
The retail industry is witnessing an increased migration of customers ... -By-Kaushal Mehta
by Kaushal Mehta - Founder & CEO, Motif Inc..
The retail industry is witnessing an increased migration of customers from traditional brick and mortar retail to E-commerce (online retail)...more>>
Its 1 AM. Do You Know What Your Offshore Team Is Doing? -By-Samir Shah
by Samir Shah - CEO, Zephyr .
You probably do because you are on the phone with them! For all of you working in some technical management capacity here in Silicon Valley,...more>>
Disconnect: The Root Of All Execution Evils -By-Raj Karamchedu
by Raj Karamchedu - Chief Operating Officer, Legend Silicon .
These days are a mixed bag for me. Of late I have been considering "doing something bigger and better," in my life, perhaps seriously though...more>>
IT Services Rise Of Tier II Companies -By-Madhavi Vuppalapati
by Madhavi Vuppalapati - CEO of Prithvi Information Solutions .
IT Services Rise of Tier II companies The Indian IT outsourcing industry is going through very exciting phase in its business life...more>>
DLP, Prevention Is Better Than A Cure -By-Bhaskar Bakthavatsalu
by Bhaskar Bakthavatsalu- Country Manager, India and SAARC of Check Point Software Technologies.
Data loss occurs every day through corporate email. In fact, given the sheer number of emails an organization sends every day, data loss inc...more>>