Friday, November 30, 2007

More on the cleantech data

A follow-up article on the boom in cleantech investing, as covered in my previous post. The title in this story is a little more oblique..."Green Energy Makes Money". Well, ok then.

Of interest to me, on several levels. How does the WSJ quote Mark Heesen, President of the National Venture Capital Association in their fashion, but somehow the same guy gives a complete different quote to Fortune:

"Long term, this is an area that is going to be as important to the venture capital community as biotech and IT have been in the last twenty years," says Mark Heesen, NVCA president.
I actually cut from the quote in the previous post. Here is the quote from the other article in its entirety.
“As has been demonstrated in the information technology and life science arenas, investing in new technologies can be fraught with pitfalls and is not for the inexperienced or the faint of heart,” he said. “Prudent, long-term, knowledge-based investment in cutting edge technologies has been the hallmark of venture capital in the past and should be the mantra in the CleanTech space as well. Short-term ‘tourists’ should steer clear.”
Both quotes make highly relevant points. Both quotes also could lead to very different conclusions. One is soundbite snappy, the other far more nuanced. Interestingly, the former is a mainstream online publication, the latter a blog.

On a separate note, among the causes (per this article) of the sizable increase in cleantech investing:
The emergence of the Indian and Chinese economies, both of which are consuming energy at a rapidly increasing rate, has drastically expanded the potential market for new energy technologies. Meanwhile, the combination of rising oil prices and environmental concerns has strengthened demand from policy makers and the public for alternative and more efficient sources of energy.

Thursday, November 29, 2007

Cleantech bubble? Part 1

Cleantech VC investing continues to set records:

Clean-tech investments by U.S. venture-capital firms set a record of $2.6 billion from 168 deals in the first three quarters of 2007, according to data from Thomson Financial and the National Venture Capital Association. The level of investment represents the highest dollar volume ever, surpassing the figure of $1.8 billion for 180 deals for the full year of 2006.
Is this good news? It’s a theme I plan on returning to a great deal, but I wanted to begin discussions here. One argument is represented by the next statement from the post above:
Mark Heesen, of the National Venture Capital Association, said venture investors should exercise caution. “As has been demonstrated in the information technology and life science arenas, investing in new technologies can be fraught with pitfalls and is not for the inexperienced or the faint of heart.”
I’ve been following this meme for a while – the belief by the mainstream business media, and many VCs, that we’re in the midst of cleantech bubble. Yesterday, I sat in on a speaker who was obsessed with a bubble in this space, despite the fact that his tiny fund had no cleantech investments, and he couldn’t seem to separate over-valuation of solar companies, from the rest of the cleantech space. (in spite of what some may believe “cleantech” isn’t just solar)

As I listened, I began to wonder something: did the bursting of the 1999-2002 dot-com bubble so negatively impact the psychology of the typical VC investor (and the media that covers them), that they now see bubbles where they may be none?

After all, the 4 year dot-com excess was a unique historical event (in terms of capital raised, funds launched, investments made, and IPO exits, etc.) Now, 4 years later, it seems understandable that the next big investment opportunity might be perceived through an especially cautious and risk-averse lens. Especially given the huge volume of eager capital in this space, chasing very few opportunities

Thinking on this makes me then wonder about venture capitalism itself. Has the nature of VC changed irrevocably? Does the availability of new capital and global opportunities, mixed with the mainstreaming of what was traditionally a niche field, lead to inevitable boom/bust cycles of historic magnitude (recognizing there will always be periods of over and under-investment in various "hot" technologies).

Or is it that clean tech is the once-a-decade technological/economic/social phenomenon that leads to investor hysteria and wildly overinflated valuations and expectations?

Or is cleantech just bubbly?

As I don’t invest, nor operate in VC, it’s foolish of me to try and articulate a solid position yet. But I did find interesting what New Energy Finance had to say in its recent report: “Global Trends in Sustainable Energy Investment 2007”:
The surge in sustainable energy investment activity has led some commentators to compare it with the technology boom of the late 1990s and early 2000s. However, not only does the volume of investment flowing into clean energy dwarf the dotcom boom, clean energy sector growth has continued for longer than the dotcom boom lasted and is showing no sign of abating. Furthermore, renewable energy and energy efficiency are underpinned by real demand and growing regulatory support (which the dotcom boom did not have), as well as considerable tangible asset backing by manufacturers and project developers.
To be continued....

Taking the green out of Christmas

The Journal was feeling eco-frisky today. The title says it all: "All I Want for Christmas Is a Compost Bin".

Are soy candles and spinning composters on your holiday list this year? A bevy of so-called green retailers are hoping so. With so much public attention on climate change and sky-high oil prices, these retailers are pitching energy-saving or recycled items that haven't traditionally been on most people's wish lists -- a low-energy desk lamp, for example. And while many retailers have boasted luxury wrapping in past years, companies are this year proffering natural and biodegradable packaging -- or none at all.
Once you get passed the attention-getting (and cringe-inducing) headline and lead, it's actually an insightful article.

There's a disconnect in my mind in using a season of decadence and consumption (which I freely and unabashedly revel in) and the concept of "going green". Austere living and eco-consciousness does seem a bit out of place.

And in one of the ongoing themes I continue to focus on at this blog, there's a great deal of confusion among consumers, which marketers are eagerly capitalizing on:
The word "green" is being used in marketing very broadly -- to define a water filter for example, because it cuts purchases of individual bottles of water. So some consumers may wonder which products make a real difference for the environment. The word "natural" can also fluster consumers. Textiles made from 100% natural cotton often mean that no dyes or chemicals were added to the cotton, but it doesn't guarantee the cotton was grown without the use of pesticides or other chemicals.

"Green still kind of means a bunch of things," says Adrien-Alice Hansel, a literary manager at a theater in Louisville, Ky., who is looking for eco-friendly gifts this year. "It can mean less energy than an alternative, but more energy than something else." Indeed, not buying an item can be the best bet for consuming less energy.

Offshore Wind Power in Scotland

Article from WSJ re offshore wind opportunities off the coast of Scotland. Few points:

- considerable intersection between oil and gas interests and this plant. The project is being co-sponsored by a Canadian oil and gas company, the tripod base design was borrowed from oil rigs:

What gives Britain a potential edge in developing large-scale deepwater wind power is the nation's long history of offshore oil and gas. Discovered in the 1960s, the massive oil reservoirs of the North Sea have fueled Britain for more than 30 years and sparked a huge services boom, especially in places like Aberdeen, on Scotland's east coast. The oil there is running out, fast. "A hundred thousand people work in the energy sector here," says Paul O'Brien, head of the Renewable Energy Development team at Scottish Development International. "We're looking at renewables as a way of keeping people employed."

...

Being an oil and gas company also made it easier for Talisman to get Beatrice up and running. The company fast-tracked the permits needed to install its turbines by using its existing North Sea oil and gas operating license. That's because they'll initially be used to power Talisman's oil platform. Later, the company's rigs will serve as a base to maintain and monitor the wind farm, so Talisman won't have to decommission them -- a task that can cost millions of dollars.
- with costs at about $9/w to install, these would need to drop in half (with subsidies) and by two thirds (without) to be feasible as a larger-scale US energy resource.
So far it has cost $90 million -- or about $9 million per megawatt of installed generating capacity. By comparison, a gas-fired power station costs less than $1.5 million per MW installed to build.
- finally, worth pointing out the potential of Scotland's natural resources. Could be some interesting things happening in Scotland over the next 5-10 years:
[the companies] plan to ramp it up into a spectacular 200-turbine wind farm that would turn North Sea gales into enough electricity for a million people -- a fifth of Scotland's population. Completion is probably at least seven years away.

Scotland has around 25% of Europe's wind-energy resource and some of the continent's best potential wind, wave and tidal sites.

Tuesday, November 27, 2007

Newfangled cleantech investments...

Relatively benign article in Sunday's Washington Post on cleantech investing. I'm never quite sure what to make of it when the mainstream media puts this stuff out. I won't harp too much, as this reporter may actually possess a ton of experience in VC or cleantech. But he certainly goes to great pains to keep any of that expertise out of the article. Just the first line:

Everybody seems to be looking for ways to make money on technologies that are said to reduce fossil-fuel emissions, wean the country from foreign oil and, generally, save the world
I've absolutely nothing against saving the world, but most VCs I've met put "world saving potential" pretty low on their due diligence requirements. Technology potential, a solid management team and a growing market seem a bit more important.

Other issues:
  • The reporter drops the statement "bubble-like feel" into the article, continuing that meme pushed in many mainstream outlets, despite neither describing what a bubble is, why cleantech investing has that feel, or what to look for if one was happening.
  • Couldn't quite understand the one investor's complaints about overvaluations, especially as attributed it to legislation that hasn't actually yet been passed. As opposed to say, a surfeit of cleantech investors with have a lot of cash for cleantech investments, and very few places to park it. Supply and demand, no? Seemed ironic when he then described his investment in one of the most oversubscribed cleantech opportunities out there - CIGS thin-film solar. So there's this thing called the Internet...it's gonna be huge!
And of course, the obligatory close on the power of Hydrogen:
Energy security and environmental security are coming together," said C.E. "Sandy" Thomas, president and founder of H2Gen. "Hydrogen is one of the solutions that solves both."
Nothing against hydrogen. Just not sure why an emphasis in this article.

Saturday, November 24, 2007

GBN - Impact of Climate Change Report

While this report - "Impacts of Climate Change" out of the Global Business Network is even older than the last post, it's rather fascinating:

This paper offers policymakers an alternative approach to thinking about climate change and its impacts. Instead of starting with climate change and working out toward impacts, we focus on systems that are already generally vulnerable first, and then consider what the geophysics of climate change may do to them.
The report focuses on the dynamic and chaotic nature of systems already vulnerable to instability. Areas covered include ecosystems, water availability and urban systems, as well as the role of the State in society, traditional political coalitions, and something I love: "The Global Pop-Politics of Rumors":
A key uncertainty for the political economy of climate change is how the public, which will all but inevitably remain scientifically unenlightened on the subject, will react to the news of climate change. One possibility, which has been largely realized in the U.S., is an ongoing, mutually reinforcing mixture of apathy and ignorance. Another possibility, however, is paranoid overreactions of various sorts.
I wonder what historical precedents gave them that idea...

Harvard Business Review - Business/Climate

I'm at least a month late in this, but finally read a copy of HBR's special report on climate and business. A variety of experts are represented, and each seems to hammer on the same theme (and rightly so) - necessity and opportunity. While it is imperative that business act immediately, there are a plethora of economic and competitive opportunities if those strategies are effective, transparent, measurable, thoughtful and long-term. Among the other highlights from these articles:

- Porter develops a revised SWOT analysis for this new era of climate change, focusing on an "Inside Out" approach (all direct and indirect aspects of a firm's value chain, i.e. strengths and weaknesses) and an "Outside In" approach (various effects of climate change on a firm's business, i.e. opportunities and threats).

- Esty gives his perspective on the importance of environmental transparency, especially carbon reporting and emissions management, for a company:

That capability is seen by many observers, including Wall Street analysts, as a proxy for good environmental management, which studies show correlates with good general management and superior stock market performance over time. Reporting is similarly seen as a measure of corporate trustworthiness and good governance.
- Roosevelt and Llewellyn explain why "green investment" demand is so much greater than supply:
Many of the investors who are most intensely interested in climate change don’t want to dilute their investments by putting money into diversified companies—they want their investments to go directly to green technologies or strategies. On the other hand, the diversified companies that have good green businesses...often do not want to spin them off because they want to experience all the potential gains they see in those businesses.
- Finally, I especially liked this analogy from Forest Reinhardt:
For centuries, the North Atlantic cod fishery fed millions of people, but there were no property rights controlling access to fish in the sea, so fishermen didn’t treat the resource as scarce. In the early 1990s, the fishery collapsed. Governments have since established sensible systems of tradable catch permits that seem likely to prevent the collapse of other species, but it was apparently too late to resurrect the cod fishery.
There are a myriad number of examples of unsustainable natural resource exploitation and eventual collapse. I wonder if early government regulation was successful in staving off the inevitable collapse. I'm sure I'd find the answers here. Yes, yes, it's on the list...

Interesting video clips

From Lifehack, they set the bar pretty high with the title ("Ten Videos That Will Change How You View the World")...but still good. I've seen Hans Rosling's presentation several times and it's always impressive. Chris Anderson had some interesting things to say back in 2004 about new hybrid cars, but my favorite clip is Will Wright introducing Spore.

Tuesday, November 20, 2007

You've come a long way...environment

A new survey of top executives and managers from McKinsey ("Assessing the Impact of Societal Issues") appears to demonstrate that environmental concerns, including climate change, are increasingly important in decision-making.

In the past there’s been a split between C-level executives and “senior managers” (i.e. below C-level) in terms of how seriously each group takes climate change, and their willingness to push corporate action. If I remember correctly (never a guarantee), C-level execs in the past were less inclined to be concerned about global warming, and thus less inclined to lead their companies to change policies. Senior managers were more concerned and interested in pushing change forward. 36% of the McKinsey survey's 2,687 respondents were C-level, which could either represent a good blend of opinions, or mean that the managers and C-level conflict is still hidden.

Among the results:

  • 87% of executives say they personally are somewhat or very worried about global warming and climate change. Only 3% do not believe it is happening.
Not sure if this represents personal opinion, which doesn't always follow through into strategy and corporate decision-making.
  • 51% of survey respondents pick the environment, including climate change, as being one of three issues that will attract the most public and political attention during the next five years, compared to 31% in 2005.
While this is positive trend, I'm disappointed it only cracked half of the executives' top three.
  • 48% felt the environment, including cc, was one of the three issues that would have the most impact on shareholder value in the next five years.
This is acutally higher than I would've thought, given that most of the significant damage from climate change occurs decades from now. Which again, causes concern, as what happens to this opinion 5 years from now, when shareholder value hasn't materialized?

However, my biggest concern with this survey, which I noticed the last time, is the relative absence of effective and impactful strategy in dealing with these issues.
  • In asking what are the top three most effective tactics in managing social and environmental issues, "Media, public relations" is still tied as the most effective tactic (35%), as with actually "developing and implementing policies" designed to address these issues (35%).

  • Similarly "improving compliance with law" (29%) ties with "lobbying regulators, government" (28%) and "changing product lines, processes" (16%) ties with "advertising, marketing" (15%).

To be fair, it's not as though the environmental community or other relevant interest groups have given the corporate community much to work with. While we see a thawing in the relations, for decades, an aggressive relationship of "us" vs. "them" on both sides has limited knowledge transfer, stakeholder engagement efforts, and broad-based coalitions among the various parties. The group I worked with this summer (NRDC) is certainly taking the lead in this effort (e.g. establishing a Center for Market Innovation) and I'm recruiting with a number of consulting groups (Booz, McKinsey, Deloitte, etc) which are now launching various sustainability or climate change focus areas.

Ultimately, the next generation of business leaders are focusing on these efforts far more so than in the past, and being educated (yours truly is quoted) in ways of blending the economic with the social and environmental. So this may not be a quick fix, but there's still some hope for more intelligent and strategic options in the future.

The inevitability of capitalism

Fascinating (and dense) look at the evolution in the relationship between capitalism and the State, and our predisposition to view capitalism and free-market-based structures as inevitable, and of higher purpose than all else. It also considers the detrimental impact on Society under these conditions.

If modern democracies are to survive the shock of Reich's "supercapitalism," they need to be bound by something more than the pursuit of private economic advantage, particularly when the latter accrues to ever fewer beneficiaries: the idea of a society held together by pecuniary interests alone is, in Mill's words, "essentially repulsive." A civilized society requires more than self-interest, whether deluded or enlightened, for its shared narrative of purpose. "The greatest asset of public action is its ability to satisfy vaguely felt needs for higher purpose in the lives of men and women."

Constraints in oil production

Fascinating article today in the WSJ, regarding a plateau in oil production, which would represent a significant change from traditional viewpoints.

“The new adherents -- who range from senior Western oil-company executives to current and former officials of the major world exporting countries -- don't believe the global oil tank is at the half-empty point. But they share the belief that a global production ceiling is coming for other reasons: restricted access to oil fields, spiraling costs and increasingly complex oil-field geology. This will create a global production plateau, not a peak, they contend, with oil output remaining relatively constant rather than rising or falling.
The story is covered elsewhere. Both of these recaps question if this article is just another Peak Oil argument (one saying yes, the other no).

A few things stand out to me in this article:

1) The conspiratorial side of me finds it interesting that such a controversial article would be placed on the front page of the WSJ on the same day that a very important OPEC summit is occurring. Of course it could be coincidence, but generally front page, above-the-fold stories addressing the potential plateauing of oil production come from somewhere. The reporters seem intimately familiar with a variety of extraction and refining minutiae, yet quote almost exclusively from previously public sources. Reading through this a third time, it sure feels like a number of deep background interviews informed this piece. If so, the timing and placement of the message certainly arouse my curiosity.

2) If you view $95 oil as the result of speculation, a deflating dollar and a war/risk premium (as opposed to simple supplydemand issues), you can now, according to this article, also add:
  • "resource nationalism"
  • "limits on oil field access"
  • "billions of dollars in infrastructure underinvestment"
  • "oil field damage due to over-depletion"
  • "revenue surplus which limits extraction investment"
  • "labor, construction and equipment bottlenecks"
  • "booming commodity markets"
  • "declining production levels in existing fields"
  • "overestimation of near-term potential in alternative supplies"
...as reasons why oil prices might be so high. Certainly a few of the above points are common knowledge, but in sum, I counted 9 different factors in this one article which could negatively impact the near-term production of oil. If I'm a trader with a longer-term perspective, maybe I'm becoming more comfortable with oil stabilizing above $80 for the next few years. Maybe.

3) The idea of oil production reaching a "constant" level of output that it can't push through sounds suspiciously like a natural limit to me. The article references 100 million bpd as that limit several times. I'm not implying there's a natural law from which we can't deviate, but given the plethora of challenges currently found in oil discovery, drilling and funding, I wonder what happens north of 100 million bpd. Does each marginal barrel have an increasing incremental cost of extraction? Does it cost $150 per barrel to go from 100 million to 105 million bpd say?

I've got a lot more on this, including an interesting conversation I had with a leading energy economist a while back, as well as some other thoughts, but that can be saved for another post.

Wednesday, November 14, 2007

New CC poll

Results here, write-up here:

Numbers:

  • 71 percent of respondents are personally convinced that global warming is happening;
  • 69 percent believe global warming is caused at least in part by human activity;
  • 48 percent believe that climate change already is having dangerous impacts on people;
  • 68 percent of Americans favor an international treaty that requires the U.S. to cut its carbon dioxide emissions 90 percent by 2050;