On nearly the eve of the new year, a couple of noted industry observers have already gone public with their greentech predictions for 2009. On December 4th, Cleantech Group Executive Chairman Nicholas Parker published their “Nine clean technology predictions for 2009,” which, briefly stated, are the following:
- Energy efficiency infrastructure boom initiated
- Global climate talks bog down—no serious deal until 2011/12
- U.S. passes national RPS, but cap & trade bill only in 2010
- Wind stocks come back; thin film PV shakeout
- Clean technology VC stabilizes at $7B globally; Private Equity more active
- Failure rate of cleantech startups doubles
- IT turns to the energy opportunity
- R&D stagnates; corporates acquire green growth assets
- Energy-water-food nexus emerges
One day earlier, on December 3rd, Lightspeed Venture Partners Managing Director Peter Nieh published their “2009 Cleantech Predictions,” which are:
- Cleantech funding will slow significantly, forcing startups to seek alternative growth strategies,
- Companies will come under increased pressure to achieve competitive cost economics,
- Investor interest in energy storage, especially for automotive and grid-scale applications, to grow strongly,
- Government will play larger role in cleantech, as policymakers around the country increase their support,
- Cleantech comes of age in China.
Shortly after Nieh’s predictions went public, I had the opportunity to talk with him. The prevailing question underlying all of these predictions, for me, is fairly simple – to what extent is greentech a bubble, and to what extent does reaching the limits of leverage combined with low prices for conventional energy wipe out entire sectors of greentech?
As Nieh put it, “there is the financing chasm where many of the capital intensive cleantech companies will really suffer. The pilot stage, up to about $30 million [invested] is about as far as most VCs want to go – once you go into full scale production you may need $50 million or more, this is where hedge and private equity funds drop in to fill that gap, and those sources are gone. We always knew that was the toughest part of cleantech; the credit crisis has really opened up this chasm again.”
So what is left? Where will serious funding come from, and what greentech sectors are going to win or lose with cheap conventional energy? Nieh had several observations:
On cheap conventional energy: “Our investments never assumed oil staying over $100 per barrel. For example, LS9 claims they can produce diesel fuel from sugar at a cost without subsidies that is competitive with crude oil as low as $45 per barrel.”
On funding: “There will need to be stronger syndicates forming to make bigger initial investments. There will have to be more government support, such as stronger DOE loan guarantees. There may be more interest from corporate partners looking for technology to comply with RPS mandates.”
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On what sectors may show continued growth: “There are water treatment technologies that are ‘capital light;’ utility scale solar will yield better economics sooner, because half the installed cost for [distributed] solar is balance of system, but at the utility scale the balance of system as a percent of total cost goes way down; thin film PV has a low cost per watt, but at the utility scale this lower efficiency is not a constraint; energy efficiency technologies will be more interesting, but they are not bringing as much upside and don’t have as much proprietary technology; there is a lot of innovation on the installation side of distributed PV, such as distributed inverters that will get more efficiency out of the panels; there is a real opportunity on the efficiency side since greater panel efficiency means less racking, less glass, and less wiring.”
On energy storage: “Sodium sulpher batteries are still very expensive, we need to get storage down to about $100 per kWh for it to get really interesting. The vanadium redox flow batteries have promise.”
On China: “The Chinese are able to create capital intensive technologies with far less investment, everything is less expensive, parts, machines, labor. The Chinese are pumping money into urbanization, they will continue to promote and drive this. You can apply energy efficiency in a new city or a new building, you can build them in. In China most development is new instead of retrofit, it is a petri dish of innovation where you have the opportunity to leapfrog what went in place in the west.”
From Lightspeed and from the Cleantech Group we see predictions all grappling with the question of where greentech goes in a capital constrained global economy that has returned to the days of cheap energy. In both sets of predictions a greater role for government and corporate partners is envisioned. In both it isn’t perfectly clear which sectors will continue to thrive, if any. Perhaps the worst possible outcome would be if R&D truly does stagnate (Cleantech Group #8). A second gotcha will be if government involvement results in money pouring into sectors and technologies that aren’t necessarily the best solutions.
The momentum greentech has acquired, the innovations that have been accelerated, the awareness that has been awakened and heightened, guarantee the contributions of greentech are already destined to be lasting. But greentech is undoubtedly at a crossroads. How greentech and the larger environmental movement adapt and evolve as the global economy resets over the next few years is a question of more than passing interest to investors – along with the rest of humanity. Nieh summed it up quite well when he said “predictions are hard to make, in our business we try to profit from the unknown. If it were known everybody would be doing it.”