The following opinion piece is from an independent writer and is not connected with Greentech Media News. The views expressed here are those of the author and are not endorsed by Greentech Media. Cascadia Capital, a national investment bank serving mid-market companies in sustainable industries, has no investments in the markets discussed below at the current time.
I’ve been raising money for a variety of companies in a number of sustainable industries over the past year, and after closing all the deals, I’m seeing an interesting pattern emerge: Some of the biggest opportunities for investors also provide us with huge opportunities to attack climate change.
This eco-finance alignment is more than welcome. And there are two particular sectors -- real estate and automotive -- that generate significant greenhouse gas emissions as well as the potential for meaningful returns.
The good news is that progress is already being made here: In real estate, for example, ABN AMRO, Citigroup, Deutsche Bank, JPMorgan Chase and UBS have joined with the Clinton Foundation and agreed to raise a total of $5 billion to help reduce energy consumption in existing buildings around the world; and in the automotive arena, 2006 marked the first time in 25 years that average miles driven decreased in the United States.
To a large extent, these positive developments have led me to choose advanced next-stage batteries for 21st century cars and trucks and green building and construction as two of the most promising sustainable technology segments in 2008.
My third hot market choice for 2008, waste-to-fuel processes, is on the list for a different reason. In 2007, investors poured money into biofuel; as a result, commodity prices spiked and there was economic dislocation. Waste-to-fuel investments are important because they will help the market correct itself over the next 12 months while leading to real advances in alternate energy.
Based on investor interest and the quality and quantity of deals, we are less enthusiastic about the ethanol and biofuel markets -- and think they will cool off considerably -- because consumer demand has yet to truly take hold here. And the capital investment needed for wind turbines is just too high, given that the dramatic improvements in technology and performance have already been achieved.
Advanced Battery Technology
New battery technology represents a central market segment of the 21st century transportation revolution. Without cutting-edge batteries, the fresh fleets of energy-efficient hybrids and electric cars that are poised to hit the road simply won’t get out of neutral. We especially like companies that develop software for next-generation transportation batteries. Software is the brain of the vehicle.
The evolution of battery technology, from lead-acid to nickel-cadmium to nickel-metal hydride, has recently received a boost from advances in nanotechnology. Lithium-ion battery technology has flourished from these advances, becoming more lightweight and less prone to overheating, with greaterstoragecapacity. And the major players are adopting lithium-ions as the future "go-to" technology in the hybrid vehicle industry.
From a financing perspective, the new automotive battery market can be broken down into two pieces: The pure battery providers have significant capital needs that are being met through debt and growth-stage private equity. The companies making the software operating systems that sit on top of the batteries are being funded through traditional early-stage venture capital.
Turning to green construction, buildings account for a $222 billion annual energy bill in the United States. And all that brick and mortar and glass and steel draws down about 35 percent of the national energy demand. The total rises to 40 percent if you add the energy used in construction and demolition, and it surges to 50 percent when all the energy-related factors necessary to serve buildings and their occupants are included.
So it’s no wonder an increasing number of investors are gravitating to companies with solutions in this area.
Last year, the commercial green-building industry represented a $15 billion market growing at an annual rate of 40 to 50 percent. At the end of last year, sustainable green-building projects accounted for 6 percent of commercial construction in the US; by 2009, they are expected to account for 20 to 25 percent.
The lesson to be learned from $95-a-barrel oil, soy beans selling at $9 a bushel and corn rising to just less than $4 a bushel is that we need to focus on bountiful and unencumbered inputs that don’t have multiple outputs. That way, we can lock in prices with long-term contracts.
Garbage and sewage, for example, are plentiful, must be disposed of and have limited economic outputs. So, in the end, they may prove to be less risky investments than corn-based ethanol. And algae, which can be grown quickly and more cost-effectively than corn, might also offer less risk.
The key challenge here is finding the right technologies to turn waste into fuel -- and making sure they really work.
The Bottom Line for 2008
My bottom line for sustainable technology in 2008 is twofold: First, we need to remember that our investments in this dynamic and emerging marketplace have real-world consequences that can be unexpected and extremely disruptive; and second, we need to take on two of the biggest emitters of greenhouse gas -- the automotive and real-estate sectors. If we can finance meaningful and effective innovation in these markets, we can take significant strides toward achieving our goals in the New Energy Economy.