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Five questions:  Brett Feldman, ex-NSTAR

Rob Day: November 23, 2007, 1:24 PM
Some light reading for those of you doing some heavy digesting this weekend (Happy Thanksgiving!): Regular readers of this site will know that we're generally big on energy efficiency and demand response, and more and more investors seem to be getting on board with these sentiments. So when we learned that a smart colleague in the field was leaving his position on the utility side, it seemed like a good opportunity to pick his brain as part of our Five Questions series... Brett Feldman recently left NSTAR after 3 years as an energy efficiency program manager to pursue another opportunity in the field. At NSTAR, he managed energy efficiency and demand response programs for commercial and industrial customers. Prior to NSTAR he was with energy consulting firms for four years and also earned his MBA. 1. What are generally the biggest business priorities for electric utilities these days? How do conservation and demand response/ negawatts rank in terms of prioritization of “mindshare??? among utility execs, in general? I only worked at one particular utility, but there are certainly commonalities no matter what the company or regulatory environment. Investor owned utilities are always responsible to their shareholders, however to best serve them. There is a lot of M&A action going on currently. Billions of dollars in Transmission and Distribution investments will be required in the next decade to upgrade an aging system. Most utilities are not proactive in promoting conservation; some may try to preempt impending regulation, while the bulk are reactionary. These days, climate change is a bigger issue for utility execs. I heard NSTAR's CFO say that the senior team watched "An Inconvenient Truth" together this year, and that type of thing never would have happened before 2007. 2. What’s your perspective on the pace of adoption of demand response (DR) and peak shifting among electric utilities? Is it too slow, too fast, or “just right???? The pace of DR adoption is slow. There are a lot of factors that come to play: rate structures that disincentive it; expensive metering requirements that need rate recovery; lack of good estimates of the benefits of DR on pricing and the T&D infrastructure; proven technologies to perform the DR: and customer education and engagement. 3. What do you think could be done, and by whom, to most effectively accelerate the roll-out of large-scale energy efficiency (EE) programs? There are many different levels of action that could be taken to accelerate EE. Many people are waiting for some kind of federal carbon regulations or trading scheme to set things in motion. Some states do not want to wait for federal action and have begun their own statewide or regional programs. Other people believe that municipalities should take the lead on the local level, and high-intensity targeted grassroots community initiatives are the best method. I believe that the private sector financial industry needs to take a closer look at the economics of energy efficiency and realize its potential for investing and lending. Returns can be high and projects can be low-risk. It's a matter of getting to a scale that is meaningful for investors. 4. What do you think could be done, and by whom, to most effectively accelerate the roll-out of demand response programs? There are two basic kinds of demand response: large commercial and industrial controls and mass market (small commercial and residential) direct load control. Both markets will require similar advances: new time-of-use (hourly or real-time pricing) rate structures that encourage DR; metering, communication, and control equipment that cost-effectively provide services; and customer education on the societal needs for and individual benefits of DR. For the large C&I market, the competitive suppliers or utilities could offer the services. For the mass market, the utility is the most likely party. 5. What’s the biggest “unmet need??? you see for electric utilities these days? Is there a missing or under-performing technology area where an entrepreneur should be focusing their efforts? Metering and communications are huge opportunities for technology advances. These are the keys in being able to measure and promote EE, DR, and distributed generation (cogeneration, solar, wind). Controls are always improving: remote energy monitoring and management, daylighting, different types of occupancy sensors. Of course any kind of more efficient end-use equipment such as lighting (LEDs), HVAC, motors, compressed air. ----------------------- Other news and notes: Interesting commentary on the status of the ongoing silicon shortage... OPEC launching a $750mm cleantech fund?... Cleantech investing ramps up in India... Finally, it's well worth checking out Dan Primack's analysis of 4,300 venture capital "busts" since 1990.

M2E Power — another reason to dance with your MP3 player

Rob Day: November 16, 2007, 4:50 AM
Extremely pleased to note [self-promotion alert] that M2E Power has announced an $8mm Series A round of financing, led by OVP Venture Partners, and including participation by @Ventures, Highway 12, and existing investors. The Boise-based company is developing technologies for more efficient applications of electromagnetic induction -- which is at the heart of most generation technologies deployed today. The initial focus of the company will be on the development of motion-to-energy devices for consumer and military devices that could use their innovations for efficient micro-generation to supplement and replace batteries, so that basic daily moving around (walking, driving, etc.) could provide most of the power the device would need. Down the road, generators and motors of all sizes could significantly benefit from the technology. I need one of those M2E "batteries" for my cell phone immediately, Mr. Zander... In other news, Ernst & Young released the results of an interesting survey they did at their recent Strategic Growth Forum. What made it interesting was the prominence of cleantech among CEOs and other corporate attendees at a general business conference, not a sector-specific one. Key takeaways:
  1. Around half of attendees reported that energy costs are driving their companies to take on cleantech efforts, and also that they expect energy costs to continue to have a big impact on their businesses over the next five years.
  2. Half of those surveyed said that energy efficiency would have the most impact on their businesses, as much as solar, wind, etc. combined.
  3. Two-thirds expect that market forces, not government regulations, will spur them to invest in cleantech initiatives.
  4. Nevertheless, only 22% of those surveyed said that green initiatives are led from the C-suite level.
So the survey did a very good job of capturing the current mood in corporate America toward cleantech: It's for real, it's becoming a cost of doing business, but it's still not the very top priority. It's still a far cry from how things looked ten years ago when all such environmental initiatives were solely the responsibility of the EH&S department...

Angelic returns…

Rob Day: November 15, 2007, 11:13 AM
We've discussed before the important role that angels have to play in the cleantech investment sector. The biggest reason is because there can be longer gestation periods for cleantech startups (hard to release an early beta version into the market, as you sometimes can with other tech plays).  Thus, in this sector more than others, angels with more patient approaches than institutional investors can play an important role in bridging the gap between invention and commercialization. So it's very interesting to see mention of this analysis from the Kauffman Foundation which looked broadly at angel investment patterns across all sectors and estimated that overall, angels are earning comparable returns to those of institutional venture capital firms. Even more interesting was their conclusion that, when VCs follow onto angel investments, the results tend to be very binary -- either very good or very bad. Whereas angel-only startups tend to achieve a similar average, but more consistent, return. (Which highlights what I often tell entrepreneurs:  That they need to be very judicious when deciding whether or not to take in venture capital.  When it works, it works well for everyone.  But it certainly isn't the right fit for every good business idea.) So angels should take heart from this analysis and be encouraged to continue to play a more active role in the cleantech sector. Deals from the past few days:
  • Forestry biotech company CellFor has taken in a $24.5mm Series D from "late stage financial investors" and existing investors, bringing the total financing into the loblolly pine optimization company up to $100mm.
  • It's project finance, not VC, but it's nevertheless well worth noting this $500mm effort to fund waste heat capture projects, by Denham Capital Management.
Cleantech investors in the news:  Russell Read of CalPERS is big on energy tech...  And Marty Lagod is big on water. Other news and notes:  An update on VCs and green chemistry...  An update on solar rooftop potential...  China's $3B carbon-related fund...  As we've discussed before, the amount of venture investment going into solar is eyebrow-raising...  Amen, Dan -- and for any skeptics out there, inform yourself...  For those tracking the 2008 presidential race with an eye toward potential impacts on environmental policy, here's a very handy chart (note: pdf)...  One wicked fast electric motorcyle (using A123 batteries)...  Finally, I'm still enjoying telling colleagues that the guy who probably could have been the next President has instead decided that he would prefer to have our job -- on that topic, someone needs to explain the concept of "carry" to the AP.

Welcoming the newest member of the cleantech VC community…

Rob Day: November 12, 2007, 1:35 PM
...Al Gore. If there was a Nobel Prize for PR, Kleiner would win it hands down. Time and again, they do a masterful job of getting reverential mass media attention for their partners and their portfolio companies. Some VC firms shun attention, but I think it can actually be a valuable tool for dealflow, and for helping open doors for value-add at the board level, when it's done correctly. The news today that Al Gore has joined Kleiner's team is a great example of how it can be done very well. I've personally been fielding calls from reporters all day looking for "reactions", and probably many others in the community have been as well. The media cycle is in full spin... Reactions probably won't be universally positive (Jean-Luc seems unimpressed), but besides being a very smart move for both Kleiner and Al (and Generations IM), this is a good thing for the sector. It just shows how the sector is now mainstream. It's really amazing to watch how what is now called "cleantech" (or, to give Kleiner their PR due, "greentech") has gone from the sidelines to the headlines over the past decade-plus that I've been working on environmental innovation. Even in 2004, there were only a handful of us VCs focused on the sector, and now it's a top priority investment category. Love or hate the move, when someone who could have been the next President decides instead to join us as a cleantech VC, you have to feel that's a pretty visible indication of how the stature of the sector has grown. And that's in no small part due to the leadership role Al has already played in raising awareness of climate change and what can be done about it. (I'll admit to being a bit biased -- way back in 1988 I was the only one stumping for Al in my local precinct for the Dem presidential nomination...) Today's news is also a great indication of all of the investor, government, entrepreneurial and corporate efforts that are now going into the invention of the clean energy economy. At the local and regional level, green jobs growth and concerns over issues like water shortages and climate change are prompting a lot of cluster-building efforts and other incentives for cleantech market growth. At the national level, lip-service or not, just about all political candidates are having to make climate change and cleantech a major part of their campaigning strategy. It's becoming clear that January 2009 will be a major turning point in terms of national energy policies. Even the long-maligned idea of a carbon tax is starting to get some momentum behind it, and I thought I'd never live to see that day. So while this particular news item won't make much difference for any VC's day-to-day activity, it's a good chance to take a step back and assess all the exciting changes of the past couple of years. More on the Kleiner/Generations/Gore media love-fest: In much more pressing and potentially urgent news, however, is today's revelation that threats of presidential veto and other horse-trading could mean that some of the most critically important pieces of the anticipated Energy Bill could be "taken off the table." Welcome to the team, Al, now get to work! Finally, in deal news today, CTI is reporting that Fat Spaniel has taken in $3mm in bridge financing from existing investors, as they look to line up a $20mm Series B.

Last week in cleantech venture capital…

Rob Day: November 11, 2007, 6:19 PM
  • SiXtron, a Montreal-based developer of thin-film coatings for solar cells, announced a C$10mm Series A. VenturesWest led the round, which also included existing investors iNovia Capital, Innovatech sud du Quebec, and FIDD.
  • Novomer, which is developing technology for producing plastics from carbon dioxide and carbon monoxide, announced a $6.6mm Series A. Physic Ventures and Flagship Ventures provided the funding.
  • Vaperma, a gas separation membrane developer, announced a C$21.5mm Series B, led by Low Carbon Accelerator, and including participation by Volvo and existing investors Emerald Technology Ventures, BDC Capital, and FIDD.
  • Sort of cleantech-related: Applied Isotope Technologies, which is developing kits for the analysis of environmental toxin levels in urine, raised a $150k seed round from the Pittsburgh Life Sciences Greenhouse.
  • CTI reported this week that Trellis Earth Products has raised $750k in "seed funding commitments" from angel investors. There was also a lot of revealing information about an $18mm Series A round ($60mm post-money, "set by the investment bank") that the company is trying to pull together -- it's been interesting to see more and more articles by the cleantech venture dailies, talking about financing rounds that are being sought (as opposed to rounds actually done). Are bankers telling the companies it will drum up more interest? But does it result in more potential VCs being turned off of a deal, to see such open discussion and investors already crowding around the trough? It would be interesting to track how many of these "announced rounds" end up actually coming together, and if so, when...
Other news and notes: More evidence that cleantech can be a big driver of jobs growth -- see this study and this write-up... Another interesting study -- diesel is better than hybrids or E85? The RAND Corporation says so... Another sign of the growing Boston-area cleantech cluster, this terrific MIT event... Finally, half of all Xconomy readers would rather put their investment dollars into cleantech than biotech, robotics, Web 2.0, or mobile -- and the columnist says that means you should actually avoid cleantech.

Update:  The sky is falling

Rob Day: November 6, 2007, 3:13 PM
Not really. But several pieces of sobering news from the past couple of days:
  • They say that more wars have been fought over water than oil. Even if that's a now-dated statement, it still highlights the environmental, humanitarian, and national security implications of this report from SRI Consulting that concludes that global demand for water will exceed supplies by 56%... within 20 years.
  • Then there was this nugget regarding long-term oil production forecasts from the head of French oil giant Total: "100m barrels [per day] now in my view an optimistic case. It is not my view: it is the industry view, or the view of those who like to speak clearly, honestly, and not...?just try to please people." Bear in mind that the IEA and the USGS are forecasting 116+ mbpd to meet demand under "business as usual" by 2030, up from around 85mbpd today. Don't expect oil prices to go into any sustained decline anytime soon, in other words...
So we can expect severe water, fuel and electricity supply challenges... Which seems like a good segue into the past week's cleantech venture deals:
  • Khosla Ventures and BIOeCON have joined forces in a Series A to form KiOR, another developer of lignocellulosic biomass-to-fuels technology.
Cleantech cluster news: Massachusetts takes a big step toward renewable fuels standards... Seattle VCs may be missing out on cleantech (for now), but the region is ripe for investment... And here's an article on the biggest "cluster" of all. Other news and notes: Tyler is also on the "down" news cycle, with questions about the viability of fuel cell cars and EEStor... Here's a useful overview report from Deutsche Asset Management (note: opens large pdf)... Finally, the perfect gift for anyone who enjoys combining portable electronics and heavy breathing.

Reader feedback:  Ethanol backdraft?

Rob Day: November 6, 2007, 2:15 PM
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. ----- 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.
----- 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... ----- 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".