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Thursday, September 13, 2007

Renewable Energy: Not Just Another Bubble

September 13, 2007
Renewable Energy: Not Just Another Investment Bubble
by Mark Braly, Contributing Writer
Davis, California []

Renewable energies and demand-side technologies have become the third largest investment class for venture capitalists (VC) in the U.S. This was just one of the messages heard by the more than 700 investors and entrepreneurs who convened on the campus of the University of California Davis this week for a three-day conference that showcased the newest in clean energy technologies.

"We have got to be smart about not replacing the old bad guys -- oil and coal -- with new bad guys. If you provide the right incentives you'll find the guys who will cut down all the trees for ethanol."

-- Ray Lane of Kleiner, Perkins, Caulfield, and Byers
The event, which ran Sept. 10-12, kicked off with a panel of Silicon Valley venture capitalists in a session entitled "The Green Energy of Tomorrow." The panel agreed that VC pros have expanded their notoriously short exit horizon to as much as seven years in recognition of the complications of getting these green technologies to large scale markets—and not looking for the overnight turn-arounds of the internet bubble era.

It was also apparent that personal concern about global warming was driving a new kind of due diligence among venture investors.

"We have crossed a threshold where we can talk about this differently," said Bill Green of Vantage Point Partners. "Up to now we [the U.S.] have been brain dead, which you know if you've ever traveled in Europe."

"We have got to be smart about not replacing the old bad guys—oil and coal—with new bad guys," cautioned Ray Lane of Kleiner, Perkins, Caulfield, and Byers. "If you provide the right incentives you'll find the guys who will cut down all the trees for ethanol."

Samir Kaul of Khosla Ventures said that incentives from the government will be important in the early stage of a clean tech start up, but that $40 to $45 a barrel oil allows a range of technologies to be competitive with oil. (Oil is now hovering at a record $78.)

In addition to sessions, presentations and high-level debates, organizers of Going Green 2007—Always On and KPMG—announced the top 100 green start ups in categories ranging from solar to bioenergy. Over 3,000 companies were nominated by a survey of investors, and the winners were selected by a panel of venture capitalists.

Packy Kelly, who heads KPMG's venture practice in Silicon Valley, said that the companies were judged on the basis of novelty of idea, size of market, value created for investors, potential impact on environment and communities, and media buzz.

Despite the west coast tilt of the winners, the number one company was Grid Point Inc. of Washington, D.C. Grid Point's president and CEO Peter L. Corsell said the company's energy management systems can make "negawatts" (energy efficiency) and distributed energy sources, such as photovoltaics, an integral part of a utility's assets.

Thus, the company is working with utilities, such as Duke Energy, in pilot projects around the country. Distributed energy sources, storage and management could replace costly, dirty peaking generating plants with utility operating rooms able to call up these resources when needed. Meaning a major objection of utility grids to distributed energy sources could be resolved.

A survey of attendees conducted prior to the "GoingGreen 2007" conference showed that three quarters expected to see an increase in funding for greentech in the coming 12 months. Nearly half of those surveyed feel that this will be a sustained investment cycle, not another investment bubble.

According to KPMG's Kelly, when asked where the funding would flow, 75% of those surveyed felt that one area of the U.S. would see a substantial increase, with the western U.S., particularly California, noted most often. Outside the U.S., 57% see the increase focused on a particular region. China, India and southeast Asia were considered the most likely destination for future greentech funding.

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