The Next Page: CleanTech 101
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A few years ago, in an effort to finally combine my passion with my profession, I decided to commit the rest of my career to helping renewable energy companies achieve their growth plans. It seemed like a great idea at the time given the size of the market opportunity, the political imperative for national energy security, my background as a private equity investor/adviser -- and the fact that I had spent most of the 1970s trying to get back to the '60s.
Needless to say, it's been a long strange trip for both the latent hippie in me as well as the hard-nosed businessman. Since then, the scientific community has concluded widespread consensus on the hard reality of human-induced global warming. The economy has soared from the best of times to the worst. And, last week, a federal stimulus program was signed into law -- allocating roughly $80 billion to begin building out a "new energy economy," with plenty more to come.
I've tried to study this frustrating intersection of energy, economics and politics with a balanced view and would like to share in plain language some of what I've learned.
WE CALL IT "CLEANTECH." It's the term that venture capitalists came up with a few years ago that sounded better than "green tech," which had nonprofit, tree-hugging connotations.
It means "investments in businesses and new technology that offer competitive returns for investors while simultaneously providing solutions to global environmental and energy challenges" (by minimizing or eliminating pollution and the production of CO2).
It used to commonly mean energy from wind, solar, geothermal and biomass sources. But in the last three to four years, it has grown into a monster category including energy efficiency of all types: energy storage, "smart grid" technology, water and wastewater, advanced materials, resource-efficient agriculture, recycling & waste and a dizzying number of gee-whiz software and information technology products that help monitor and manage energy and resource use.
The starry-eyed hippie in me loves it all. The hard-nosed business guy is skeptical, trying to sort out the opportunity in it all.
MY ADVENTURE BEGAN IN 2005 trying to get a handle on both the supply and demand sides of the overall energy market -- total usage by type and application, imported vs. domestic supply, remaining reserves, projections for the various sectors going forward, etc. What a mess.
Energy, like money, you find out, is so ubiquitous and "fungible" that the answers can be very different, depending on who you're talking with -- and what their agenda is.
My first conclusion, after much study of the debate, was that "Peak Oil" is real and that the world is running out of oil much faster than the general public is aware. That was scary. The whole story of civilization in fact can be told as the history of finding more and better sources of energy to fuel its growth.
But of all forms to date, oil has been supreme due to its cheap abundance, dense concentration of BTUs, relatively easy transportability and the alchemy with which it can be transformed into so many commercially useful products. If you overlay a graph of the growth of oil over a graph of the growth of the money supply, they look like pretty much the same graph.
IF YOU WANT TO KNOW what somebody really thinks, follow the dollars, right?
Regarding oil, the major players have spent a great deal more of their outsized profits the last several years buying back their own stock rather than investing it in new exploration and production. That might be a rational way to maximize profits for shareholders, but it's not really a solution for dealing with the double whammy of Peak Oil and global warming.
In the meantime, unyielding energy growth demand in emerging markets like China and India will only continue to relentlessly drive up the price of all finite fossil fuels over time. At the same time, they provide a huge market for CleanTech, building extensive new energy grids. In the face of this, and a deregulated utilities industry leading to yet more price spikes as we've seen the last few years, the feasibility of CleanTech investments is likely to steadily improve.
One obvious example is solar energy, whose cost is expected to begin reaching a competitive position with coal, or "grid parity," in the 2011-2015 time range. As the parity lines meet across different energy sectors in the global economy, more and more sustainable technologies and projects should become feasible with attractive returns and better paybacks. That's good.
There may be a lot of volatility along the way caused by shrewd and panicky commodity speculation, but the general trend seems unstoppable.
It may be a rocky road but, ultimately, the CleanTech process has the potential to create an extraordinary convergence of wealth, jobs and national security for any country that invests heavily in sustainable energy technology.
The hippie loved this idea because it worked for everybody and the businessman even got a little patriotic about it. Bingo.
There was only one problem -- the financing "gap."
When you run the numbers now, the cost of renewables simply can't compete with fossil fuels yet on a straight-up basis. They've been completely dependent for development on government incentives.
When realizing this in 2005, it was not good news because, as a career private equity guy, I never wanted anything to do with companies that prospered on the largesse of government, period. But I also recognized that coal, oil and nuclear each received enormous government support for decades early in their development to build out their infrastructures. So I forged on up the learning curve which, for me, consisted of lots of trips back and forth to Harrisburg and Washington in order to learn the political game.
It wasn't as bad as I thought - there are a lot of good, smart people working on CleanTech in government, especially at the state level in Pennsylvania and, prospectively, the new administration (A Nobel laureate scientist -- Stephen Chu -- in charge of energy? What a concept!)
Needless to say, my views on the role of government in the development of CleanTech have completely been stood on their head in light of the larger issues.
Actually, there were two problems and I took the next one kind of personal. It slowly sunk in that we're not only running out of oil, we're running out of time.
The installed base of U.S. renewables, although growing at breakneck speed the last few years, is still tiny, producing less than 3 percent of our energy needs (not including hydropower). Even with plentiful capital, it would still take too long to build out a meaningful portion of our energy from renewables before cars started running out of gas and the planet pushed past a warming point of no return.
Pretty depressing stuff, before even factoring in the recent market meltdown. Because it's so capital (and debt) intensive, the CleanTech infrastructure has been hit pretty hard.
THERE ARE AT LEAST THREE very real silver linings to the current economic contraction and the miserable projections of more to come:
1) The exciting news is about the new stimulus package and the terrific inducements to attract new investment dollars across widespread segments of the renewable energy sector. Over time government subsidies can be reduced as private investment grows.
The Obama administration seems intent on thinking of economic recovery and building out a new energy infrastructure as the same thing. That's big.
There's a big difference, too, in my book between deficit spending to create a new energy infrastructure with multiple streams of long-term benefits and deficit spending on items we simply consume, like bombs used to protect our oil interests overseas.
As far as whether the money will actually be spent the way it's intended, I'm a taxpayer in the same boat with everyone else hoping that's the case.
2) It's been said that the United States is the Saudi Arabia of wasted energy. For example, it's estimated that 64 percent of all the energy burned to generate electricity is lost as waste heat escaping through the smoke stack. Simple thermodynamics allows us to capture another 10-15 percent of that energy. This kind of low-hanging fruit comes into close focus in hard times like these and completes the picture of a right- and left-foot way to move forward.
Saving energy is just as big a part of the solution as making clean energy. It buys us time.
America has a couple of generations' worth of opportunities like this one to do more with less. (Europeans use about half the energy we do on a per capita basis.)
Conventional reasons why efficiency investment is such a big part of both short and long term solutions are that it:
• Creates more jobs per dollar invested than dollars invested to actually make energy.
• Involves less technology risk than newfangled ways of making energy and therefore has more predictable returns.
• By and large, is quickly and easily deployable leading to faster turnover and redeployment of the dollars.
• Avoids building more (expensive and potentially dirty) generating capacity. Up to two-thirds of the energy used to make electricity from coal is lost to waste heat and line loss.
• It's just easier to understand.
3) Lastly, and perhaps most important, saving money has not just come into vogue lately but is actually changing the way we think, behave and spend money these days.
That's potentially huge. We're a nation of uber-consumers. My hope is that the pain of these hard times will somehow help drive home the point to all of us, me included, that we got here by spending way beyond our means, both through "easy" money and our addiction to cheap oil.
We're already borrowing economically from future generations to pay for our overspending as a nation. What's even worse is that we've been squandering the rich principal of our natural fossil endowments. It will be imperative that we wisely use our remaining fossil fuel to not just provide needs for now, but to use in the building of the renewable grid that will enable us to maintain some semblance of our lifestyles and economic growth well into the future. Changing our personal lifestyles and behaviors is the hardest thing of all to accomplish but, for better or worse, it's really the only way.
There's no easy fix, technological or otherwise, that will solve our long-term energy and resource problems.
WE'RE LIVING IN A TIME between the times right now. The future really does hang in the balance, but there's plenty of blue sky if we respond appropriately. It's all about choices and actions.
In the deal business, there are vintage years and dog years for investing. These are those veritable best of times for those with capital to invest -- especially in energy and CleanTech. There's plenty of money to be made. The challenge is to do it sustainably so we can keep doing it.
Remember about following the dollars to understand what someone really values? We all have some dollars. How are you making, spending and investing yours (i.e., your energy)? Even if you don't have much, now is a vintage year to begin making changes and spending and investing wisely for the long term.
Good planets are hard to find and we better start taking our cues from this one about how to live, work, play and invest.
I'm happy to report that that's something the hippie and the hard-nosed guy both now understand and can agree on.
First Published February 22, 2009 12:00 am
