A generation later, "The Times they-are-a-Changin" --
in ways neither Bob Dylan nor anyone else envisioned. The
world's economy is starved for fossil fuels but it is also
receptive to clean technologies that cut the level of
harmful emissions.
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Ken Silverstein
EnergyBiz Insider
Editor-in-Chief |
Fossil fuels such as oil, natural gas and coal not only
have volatile prices but they are also responsible for a
host of pollutants as well as carbon dioxide emissions
tied to global warming. New discoveries would diversify
national fuel portfolios and help sustain the environment.
And, today, major companies such as General Electric are
coming to the table because investments in green energy
are profitable.
"With the combination of rising energy costs, overall
natural resource scarcity, growing demand for
environmentally superior products and greatly improved
clean tech alternatives, it is possible clean tech will
capture up to 10 percent of overall venture capital flows
by 2009...," says Nicholas Parker, chairman of the
Cleantech Venture Network in Ann Arbor, Mich. The firm
just released a report that says capital dedicated to
clean tech companies could reach $10 billion by 2009.
The emergence of dotcoms along with the overabundance
of capital gave birth to a new era for venture capital
investors in the 1990s. That's all changed. But, 2005 is
the start of something fresh: Venture capitalists pumped
about $20 billion into upstart operations and about $520
million of that went into such sustainable technologies as
wind, solar and fuel cells, says San Francisco-based Clean
Edge. Individual clean technology deals won an average of
$7.5 million each.
Another survey by the National Venture Capital
Association says that 21 percent of venture capital firms
globally are planning to invest in the energy and
environmental sectors over the next five years. That's up
from 12 percent now. Altogether, at least 90 venture
capital funds are raising money to invest in sustainable
energy, adds Cleantech Venture Network. And even the
established businesses are getting more involved, it says,
noting that 27 of them said they would invest at least $1
billion in green energy.
GE is active in wind and solar. The company bought
Enron's wind unit about five years ago and says the
division is profitable. GE also paid $15 million, along
with assumed debt, for the solar power venture AstroPower
about 18 months ago. Florida Power & Light, meantime, says
about a quarter of the energy it produces comes from wind.
It invests $5-$10 billion annually in the global wind
market. Other utilities such as Hydro Quebec's CapiTech
and Ontario Power's OPG Ventures are also active in clean
energy investing.
"Wind provides a decent return on equity and it is a
good deal for shareholders," says Mike O'Sullivan, senior
vice president of development for FPL Energy.
Going Green
The economic downturn in early 2000 meant that
fledgling companies with innovative ideas were starved for
cash. In the case of fuel cell companies, the flow of
capital nearly stopped and their stock prices nosedived.
Now, investors have come up for air. Venture capitalists
are not just eying renewable technologies. They are also
getting more involved in power grid optimization and
energy management.
But some analysts are advising would-be investors to
scrutinize the start-ups asking for capital. Clean tech
"is now frankly over-hyped, and I am seeing poorly
conceived business plans getting funded," says Peter
Fusaro, in a column he authored for UtiliPoint's
IssueAlert. "So-called 'science experiments' don't cut it
on Wall Street ... Many of these technologies are so debt
ridden that they will never be commercially viable."
Fusaro doesn't give the whole sector the thumbs-down.
He is positive about hybrid vehicles and coal gasification
that cleanses coal of its impurities before it is burned
and goes out the smokestack. American Electric Power and
Cinergy Corp. are two utilities getting involved in this
pursuit and are doing so with the expectation that they
will be able to pass through the cost of such ventures on
to customers.
For a short period last decade, a lot of utilities were
getting involved in venture capital funds by creating such
units within their overall operations -- without any
guarantees of getting positive returns. But the
culmination of power trading scandals and hard times meant
the majority had to retreat and focus instead on their
bread and butter operations. PNM Resources of Albuquerque,
for example, lost nearly $2 million in 2003 in the boiler
inspection business.
Others, though, have kept a foot in venture capital
investing and view it as a means by which they can learn
what is happening on the ground floor of American
enterprise. Cinergy, for instance, owns energy
conservation firm Vestar.
Venture capital investing is a method by which
utilities can learn about new opportunities without having
to risk unlimited capital. Such investments are uncertain
but seen as a way to invest in emerging technologies that
could affect core operations. In addition to the 35
percent returns that most companies hope to achieve over a
five-year time frame, the outlays must expand the parent
companies' markets for its products and services.
According to Tucker Twitmeyer, managing partner at
EnerTech Capital in Wayne, Pa., there is no ideal entity
when it comes to investing in clean tech. Each unit has
its own methodologies and each has merit when it comes to
getting value out of the energy market. Utilities
generally may be getting out. But, other large industrials
are getting in.
At the same time, some venture capital firms have
remained active in the sector. EnerTech, for example,
picks early stage deals and ones where there is
significant revenue opportunity in a 6-18 month time
frame. To be successful, firms need a path to
profitability in three-to-five years, adds Twitmeyer.
EnerTech typically builds a syndicate of investors and
demands board seats on every company in which it invests.
"It's a good time to be a buyer," says Twitmeyer. Among
the businesses he likes: WellDog, a Wyoming-based
enterprise that has developed uncommon tools to discover
natural gas and particularly coal-bed methane. Others are
high on Energy Innovations out of Pasadena, Calif., which
develops solar panels. It has raised almost $17 million in
recent months.
Indeed, times are different. During the height of folk
music, corporations were seen by some as the evil spirit.
Today - with the leadership of companies such as GE --
they are viewed as a springboard into the New Economy.
Going green is not just fashionable. It's also profitable.
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