Reader feedback:  Ethanol backdraft?

In response to various blog ramblings by yours truly, there have been quite a few very thoughtful comments emailed to me and posted on this site over the past few weeks, and it might be good to bring up a few as useful points for discussion…

Nathanael Greene, who authors one of the best environmental policy insider blogs (Switchboard), wrote in response to a recent post on the possibility of a bubble in solar:

I would be interested in your thoughts on the potential for a significant dip in one part of the cleantech world to take the steam out of the entire sector. I speculated that this would be worst case outcome of the dropping price for ethanol in this post but of course a day later there were a at least two reports that ethanol prices would rebound towards the end of next year. I would guess that entirely depends on what happens with the energy bill, but regardless it’s still an interesting question as to whether the cleantech sector is large enough and cohesive enough to rise and fall based on the fortunes of any given segment.

It’s an interesting question indeed.  But the answer is simply that the cleantech sector is disjointed enough, and the broader investment thesis compelling enough, that a dramatic downturn in any one sector like biofuels probably wouldn’t infect investor opinions about other cleantech sectors.  What drives the attractiveness of biofuels (high oil prices and favorable fuel policies) doesn’t really impact the drivers for rapid adoption of solar (high electricity prices, neglected T&D, and different policies), and neither are very connected to other sectors like water tech and materials efficiency.  As we’ve talked about here before, oil prices get all the press, but they really don’t impact most clean technology markets.

It sure doesn’t seem like our looming natural resource shortages are going away anytime soon.  At least for cleantech-specialist venture capital investors, there’s probably enough recognition of the disconnects between the various cleantech subsectors that one subsector’s fortunes won’t overly impact the others’.  But there are still some macro factors that could dampen investor interest across the board:  A collapse of the U.S. and/or Chinese economies would temporarily dry up the rampant growth in demand for natural resources (and thus affect commodities pricing overall) that is at the heart of the cleantech investment thesis.  And if the IPO window shuts for tech plays in general, that would probably scare off those investors who are jumping into the space late to get on that bandwagon…

But the ups and downs of stock prices for publicly-traded non-cellulosic ethanol stocks probably won’t impact the intentions of investors who are looking more broadly and further down the road.  ...At least not THIS investor’s intentions.

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MIT’s Bill Aulet wrote in response to a recent post (itself a reply to his Xconomy column) on the management challenges in cleantech:

I like your phrase that “it takes a village� to do good energy starts up. From what we are seeing, this is the right approach and the facts you cite about syndicating deals (which seems more prevalent in energy) make sense. Let’s keep an eye on this because we need to find a solution. We all agree that it is significantly different than most other industries.

Scott Meinzen then added to the same post:

What’s notable also is that unlike in enterprise software, there is a trend that adopters of clean-technology solutions see energy and resource conservation as an issue that everyone needs to address. As a result, the people involved with implementing such solutions have (so far) been less proprietary about their choice of adopted technology. I work for a smart-water management company and many of our customers willingly become subjects of success stories and are eager to refer their solution-of-choice to others, even their competitors, in an effort to encourage the adoption of proven, demonstrable resource-saving solutions. It seems like I can’t look through a magazine without reading about XYZ Company and their “Green Manager� that implemented ABC solution and the results that they are realizing (or failures, see BusinessWeek’s “Little Green Lies�). This may be more of a reflection on the characteristics of people that are taking on the role of “chief responsibility / sustainability officer�, but it is encouraging that, at present, companies are taking the view that “going green� is something everyone should do and sharing / touting their efforts as opposed to viewing their actions as a competitive advantage that needs to be guarded.

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In response to a post on the barriers to adoption of building energy efficiency and DR technologies, Paul Grover added the following:

You mention the study that indicates that people over estimate the cost of green buildings. I can’t really comment on new construction, but can for retrofits.

One of the problems is that most utilities and energy companies use an “average cost per kWh� as the measure for evaluating electricity savings. While this is convenient, it is often quite inaccurate. The amount that is inaccurate depends on the interaction of the building’s electricity use with the tariff. We’ve seen some instances where using average cost per kWh can introduce payback inaccuracies of 3x………..which is why it is necessary to model the tariff/building signature before and after the proposed retrofit. Doing so, as a regular practice, would give owners and managers of buildings far more accurate numbers upon which to make investments.

In an email exchange later, Paul reminded me of Jevons Paradox...  Which may be as applicable today as it was in the time of James Watt…

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Finally, in response to my six questions to ask in Toronto, Oliver Morton wanted to know what the answer to question #1 was…  Sorry, Oliver, we’ll all have to wait and find out.  But the answer to question #6 was a very disappointing “No”.