March 1, 2010

Renewables – Shaping the Energy Mix

World energy consumption is currently around 131,400 TWh per year, an average consumption rate of 15TW power.  This is forecast by the Energy Information Administration to continue rising roughly linearly at least to 2030.  Our challenge, therefore, is to increase energy consumption while reducing carbon emissions.  Key parameters to this achievement are (1) in which year will carbon output peak and (2) how many degrees will global temperatures rise as a result.  Different scenarios provide different results.  Suffice to say that the current ambition to limit temperature rise to two degrees looks unachievable given the current pace of global policy.

Renewable Energy delivers 18% of global electricity needs today, of which hydroelectric (13%) is by far the largest contributor. VC investments tend to be focussed on ‘new renewables’ such as solar, wind and biofuels.

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The current production costs of renewable energies vary greatly from technology to technology, with wind generally being the cheapest while solar photovoltaic is generally the most expensive per kWh of energy produced. Levelised energy costs take account of capital investment and ongoing operational costs over the life of a plant, with future cashflows discounted.  The costs shown here are pre-incentive, i.e. before government subsidies are taken into account.  All are currently higher than coal and gas fired electricity, although wind and geothermal are close competitors.

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Part of government’s role in stimulating clean energies is to alter the cost equation so renewable become more attractive to investors and consumers. It does so by imposing financial burdens on fossil fuels (via renewable obligation certificates, pollution permits etc.) and through selective subsidies to renewable sectors.  For example, the UK government proposes a range of feed-in tariffs for electricity supplied to the grid, with solar power receiving a higher rate. Solar is favoured because its costs are anticipated to fall dramatically with further investment in research, and because it can be easily be deployed by individuals on a small scale once capital costs fall.

February 15, 2010

What’s hot in cleantech VC ?


Investment Drivers

Growing demand for environmental technologies is driven by long term rising oil prices, growing awareness of global warming, and government regulations and incentives.

The industry has benefited from the expectation of a rising carbon price driven by increasingly restrictive regulations. However, the failure of the Copenhagen talks have set this expectation back somewhat.  Consistency and predictability of regulation would free up more capital investment in the sector.  However, in the long term, clean technologies must be competitive on their own merits rather than depending on subsidies and incentives.

VC Investments

Cleantech received $5.9 billion of venture capital in 2009 [Cleantech Group and Deloitte]. This represented a quarter of all global VC investments, more than any other area, despite a recession-driven 30% dip from 2008 levels.

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Historic expertise in venture capital, plentiful solar resource and similarities between solar cells and semiconductors have combined to make Silicon Valley a cradle of the Cleantech innovation boom.  Leading investors in the space include Kleiner Perkins, SAIL Venture Partners, Rockport Capital Partners, Khosla Ventures, Element Partners, Draper Fisher, Foundation Partners.

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VC Sector Focus:

Top sectors for VC investment were:

·       Solar energy (e.g. newer more efficient solar cells)

·       Transportation (e.g. infrastructure and batteries for electric vehicles)

·       Energy Efficiency (e.g. insulation, intelligent sensors, efficient motors)

·       Biofuels (e.g. biodiesel, wood chip burners)

·       Smart Grids (e.g. power distribution management, demand response)

·       Water (e.g. purification, desalination and irrigation).

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VC Stage Focus

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In Q2 2009, about 8% of Cleantech VC investment went into start-up companies, 27% into companies that were developing products, and 65% into firms that were already shipping products [Ernst & Young survey]. This represented a risk-averse shift to late stage companies driven by the 2009 recession.

Other funds

Beyond venture capital, cleantech attracts much larger investments from traditional sources including banks, infrastructure funds, corporates, governments and private equity firms. The majority of this goes into mature capital intensive sectors such as wind energy.  It was estimated that world-wide investment in clean energy would reach $200 billion in 2009 [Bloomberg New Energy Finance].