Kjartan Jansen 06 30 05, 10:16 PM

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Schneider Electric to Buy Juno Lighting

Today, Schneider Electric announced it will buy Juno Lighting for approximately $610M ($410M of cash, $200M of debt). While it is not clear that Juno itself is a Clean Technology company, from the advanced material panel at the Cleantech Venture Forum and Rob’s excellent write up of it (referenced in today’s previous post, but here it is again), we know that lighting represents 20% of total energy consumption in the US. As such, this transaction provides a good comparable for Clean Technology lighting companies. The acquisition price represents roughly a 2.5x sales multiple, which should be considered pretty decent for a Cleantech transaction.

Kjartan Jansen 06 30 05, 10:06 PM

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Energy Tech Investor Conference

Yesterday and today I had the pleasure of attending Strategic Research Institutes Energy Tech Investor Conference here in San Francisco along with Expansion Capitals' summer intern Graham Evarts (who is co-contributor to this post). The conference was relatively well attended with around 100 participants yesterday and 75 or so today. The breakdown of investors vs. companies / industry groups / labs / others was pretty even, with investors being slightly better represented.

All in all it was a good conference, with very high quality speakers and presenters. The keynotes and panel topics continue to be timely, and below is a summary of key points.

Wednesday 6/29

Bryant Tong of Nth Power gave the introductory remarks to the conference.

- He has seen significant uptick of interest in Enertech since California Treasurer Phil Angelides announced the Green Wave Initiative in February 2004

- Some recent stats:

• $1.2B deployed in the sector in 2000 (high)
• $509M deployed in the sector in 2003
• $520M deployed in the sector in 2004, with average dealsize up 25% to $7.5M
• Now: $1.5-2B are being raised targeted at the sector
• He expects $3-5B to be deployed in the space over the next 2-3 years

- Key drivers (we include some from the panels as well):

• Low cost lasers
• Cheaper, more efficient communications devices
• Improvements in materials sciences
• Desire for energy independence
• An expected dramatic increase in international demand (Chinese GDP grew 9%+ last year)

The “State of the Industry: Challenges, Opportunities and Outlook� panel represented various company stages, including VC (Ira Ehrenpreis of Technology Partners and Tim Woodward of Nth Power), project finance (Ren Plastina of CIT Commercial Finance and Mark Huang of GE Commercial Finance – Technology Lending), equity research (Jarett J. Carson of RBC Capital Markets), and public support (Ken Locklin of Clean Energy Group).

The panelists largely agreed the drivers are in place for continued expansion in the sector. Points noted were a doubling in the price of coal over the last year as well as an upward trend in the cost of natural gas. Generally speaking, there seemed to be consensus among the crowd that the cost of energy and natural resources will continue to increase or flat line, at least for the next 5 years (I heard some participants say privately that they could see scenarios where oil drops down to $20-30 / barrel – what happens if India and/or China experiences a sudden recession for whatever reason?).

Tim noted that the utilities now invest large amounts of cash into their core business (power generation, transmission & distribution), which bodes well for technologies supporting this.

Project finance remains a key challenge. The lenders represented here typically look for $25M+ projects (size matters to lenders too, since underwriting a $500K transaction requires roughly the same amount of work as a $25M transaction), but GE is exploring a template which will allow it to underwrite smaller transactions more readily. Mark Huang also “joked� that GE looks for “no risk, high return� transactions. The takeaway here is the VC’s need to keep lenders in mind during the diligence process and the companies need to be very savvy in presenting their projects.

The panelists were also asked what their evolutionary predictions are for the next decade. Here’s what they said:

• PV at
• Large MW Fuel cell projects
• Energy externalities will be priced in

The next panel discussion session attempted to address the question, “Is CleanTech in danger of being overfunded?� While both sides of the coin were represented on this issue, the majority seemed to feel that there will always be promising technology companies that will go hungry for lack of capital. The other interesting point made was that the true constraints facing energy technology investing are a dearth of educated investors interested in CleanTech and a scarcity of qualified entrepreneurs and management teams to lead CleanTech firms. The end result is venture capital firms facing capacity constraints, meaning they don’t have sufficient time to find highly lucrative ground-level opportunities.

In the “Corporations & Cleantech: Pros & Cons� session, everyone agreed there is appetite for new technologies, but that there are still significant hurdles to overcome. According to Marc Aube (or Marubeni) “operational track record is king right now�, which means: don’t expect a shift in the sales cycle anytime soon, it is still a decade (as someone said in a different panel). So make sure to include this in your planning if you strategy is to sell to utilities.

During the panel discussion on “Energy Tech Convergence�, Martin Tobias (of Ignition Partners and Seattle Biodiesel) claimed that there was no software play in Energy Technology that will provide venture-grade returns, and no one challenged him on this. His point was that the degree of customization required for the utility customers prohibits the kind of mass replication needed for success in a software company. But it is not all bad from a VC perspective. Some quick points from the discussion:

• Grid is on average 40 years old, the people maintaining it probably 60
• Parts of the grid perform well, other don’t. The challenge is no one knows which is which until it’s too late – enter remote monitoring and control technologies
• There is a shift happening in the relationship between provider and end user – enter demand response technologies and services

Thursday 6/30

Today started with “Asset Allocation – Rethinking Energy Focused Funds: The Investors’ Perspectives�, and combined public sector (Winston Hickox representing CalPERS) with private sector (Nancy Pfund representing JP Morgan’s Bay Area Equity Fund). Winston was pretty clear that climate change is a significant driver for Cleantech, and in terms of asset allocation, few have made a clearer statement than CalPERS regarding intent to allocate assets to the sectors. While not news, the commitment is significant enough to note here:
$200M of the Private Equity portfolio invested in Cleantech (adding to this, CalSTRS have committed another $250M)
A 20% near term energy efficiency improvement in the buildings that comprise CalPERS’ $20B real estate portfolio
$500M of investments in global public Cleantech equities
Active use of investor governance tools to facilitate change with the portfolio companies

Next came the “Wind, Water & Solar� panel. One question posed was: is solar today where wind was a decade ago? While no one really said so, the answer appears to be yes. Solar is a large opportunity, and continues to grow at double digit rates. And water: with increased prosperity comes a demand for clean water. Population growth in the arid west continues, yet “strangely� the Colorado River has not added capacity to match. Clearly the need for clean water will offer some interesting investment opportunities. John Rockwell (DFJ Alta Terra) offered the following as interesting areas of opportunity: Wastewater treatment, water filtration, and water quality monitoring.

The discussion of “Micro and Portable Power� was fairly straightforward – battery and micro fuel cell technologies have potential, but turning technologies into cost-effective, customer-ready devices takes time. Tom Covington, CEO of Ardica Technologies, believes there will be low levels of consumer adoption of micro fuel cells by 2007-2008, but a major inflection point will not occur until 2010 or beyond. Michelle Rush, VP of Marketing at Medi s Technologies, disagreed, saying consumer adoption will proceed more rapidly

“Hydrogen Economy� discussions are always interesting, and seem to fuel the most controversy. This time was no different, yet the topic has been so well covered by Rob in the past (here and here) that there is no need to regurgitate most of it. One interesting point though: when questioned, even those who believe in the future of hydrogen (and have invested to prove it) admitted that hydrogen production will continue to be a source of CO2 emissions (NG is currently the fuel of choice for production) for several decades, until renewable energy sources are efficient enough to fuel the production.

To end, the topic of Biodiesel came up several times, most notably from Martin Tobias (Seattle Biodiesel). Most if not all modern diesel cars can run on biodiesel with no modification. His point: if you can deliver biodiesel to the end user for less than you can deliver conventional diesel, the entire diesel market is open to you.

Kjartan Jansen 06 29 05, 8:47 PM

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At an Energy Tech Investor Conference and Senate Passed Energy Bill

It’s a very busy week here in San Francisco: I am currently at the second annual Energy Tech Investor Conference. Stay tuned tomorrow for some highlights from the conference. In the meanwhile, you have undoubtedly already seen that the Senate passed a new energy bill yesterday. You also probably know that there is work to be done before the House and Senate can come to agreement in this respect. That said, and while the drivers for Cleantech generally are not regulatory or politically driven, these key provisions, if implemented, should benefit Cleantech VC’s:

• 10% RPS: new requirements to produce 10 percent of generated electricity from renewable sources by 2020
• Clean coal: a new 20 percent investment tax credit for clean coal facilities and a new 20 percent investment tax credit for coal gasification units that produce fuels and chemicals; Tax breaks, loans and credits to companies for technology to voluntarily reduce carbon dioxide emissions - such projects may include coal gasification and carbon sequestration
• Ethanol: a requirement for refiners to use 8 billion gallons of ethanol by 2012

Kjartan Jansen 06 27 05, 3:13 PM

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Housekeeping

I was traveling at tail end of last week (on my way back from a conference), and missed the opportunity to post anything on Friday or over the weekend. The below is a summary of the last few days (and also some items from last week I didn’t have time to comment on during the conference).

• GE plans largest desal plant in Africa. As a part of GE’s ecomagination effort, GE Infrastructure, Water & Process Technologies today announced it plans to build Africa’s largest saltwater desalination plant in Algeria. The project is scheduled to begin this month, and last for 24 months, so the majority of the technology is likely already spoken for. This does however underscore the continued interest in desal, another source of demand for improvements in membrane technologies (briefly discussed before in this blog).
• Merrill Lynch, World Resource Institute collaborate on “Energy Security & Climate Change: Investing in the Clean Car Revolutionâ€? report (see here for WRI’s announcement and here for Greenbiz’s article on the report). It’s good to see increased coverage of public Cleantech companies. From a venture perspective, the public markets offer an obviously attractive exit path, although in the near term, M&A’s are a more likely source of liquidity for investors.
• This article in the Seattle Times today addresses VC interest in electric cars. Has the recent success of hybrid cars such as the Toyota Prius paved the path for electric cars? An interesting question we may discuss at some point. In the meantime, read the article.
• Ballard Signs Agreement to Sell German Subsidiary to DaimlerChrysler and Ford. The automakers continue to show interest in fuel cell technologies. While the word is still out on the hydrogen economy (see this post), it is good and interesting (in light of the above bullet) to see the automakers taking a long term perspective on fuel cells.
• And finally, adding even more on to this post, HelioVolt Receives $8 Million from New Enterprise Associates to Develop Thin-Film Solar Technology. The Company seeks to dramatically shorten CIS (Copper Indium Selenide) photovoltaic manufacturing and thermal budget (total amount of thermal energy transferred to the wafer during the given elevated temperature operation). One word on the VC market for solar: Sizzle.

Kjartan Jansen 06 23 05, 1:58 PM

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New Energy Capital Raises $30 Million in Financing

Project finance fund New Energy Capital announces $30M funding, $15M from CalSTRS and $15M from Vantage Point. Click here for Live Power News’ write up of the announcement. Adding to Mark McFadden’s article, it’s great to see NEC’s progress. The team is solid, and it also provides the much needed project finance component of the Clean Technology equation.

Kjartan Jansen 06 22 05, 2:37 PM

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Who said Clean Technology is gaining traction(?) and another water acquisition

Oh, right, everyone. Today, this article in New York Times, as well as an article in the print edition of the current Red Herring (note: link is now here), both point to the increased interest in Clean Technology, and some reasons why it is a compelling area for venture dollars.

In the New York Times article, Ira Ehrenpreis (who is a friend of our firm), partner at Technology Partners (a great Silicon Valley VC) says the reason his firm allocates money to the sector is he believes it is an area that can generate attractive returns.

Other key take-aways from the article include (and are not new to readers of this blog):

• The sector is underinvested relative to the opportunity
• Clean Technology represents huge, multi-billion dollar markets
• Expect to see smaller niche-sized startups, rather than an array of Clean Technology Google, E-bay’s and Yahoo’s
  

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Earlier this week, Watts Water Technologies announced the acquisition of Alamo Water Refiners, Inc.

One interesting thing to note about this transaction, beyond the fact that it is in the water quality segment, is that Alamo Water Refiners is reported to have annual revenues of approximately $13M. This stands in stark contrast to the $1.1B Mueller Industries reportedly had in 2004 revenues at the time of its acquisition by Walter Industries and ~$440M of revenues Ionics had when GE announced its intent to acquire it last year.