Venture Firms Hope High Oil Prices Will Spur Cleantech Interest
It takes a special kind of optimist to see spiking oil prices as an opportunity.
But for venture capitalists placing their bets on renewable energy, the two-year high in oil prices is a chance to re-engage the public with the potential of emerging clean technologies. But increased attention doesn't necessarily mean increased investment -- at least not right now.
"The venture investor community has not increased deal flow because of this recent development," said David Cheng, senior research analyst at the Cleantech Group, though he noted the price of oil has gotten "mainstream people" talking about hybrid cars and electric vehicles.
If oil spikes haven't spurred an equivalent spike in venture deals, at least part of the reason is the long time frame associated with developing clean technologies. Many projects will take over a decade, and a great deal of capital, before turning out a product ready for the market.
"When we're investing in early-stage companies it's not about what oil prices are doing today, this week, or this month," said Ira Ehrenpreis, general partner at Technology Partners, a venture firm with a cleantech focus. "It's about what technologies can leapfrog and become important players in energy -- many will take years to develop and evolve. It's about the long-term trends that we see."
And for venture capitalists, those forecasts have always included rising oil prices. Investors funding renewable energy startups already operate on the assumption that the reality of high oil prices will one day give alternate sources of energy a much more important role to play.
"It's an old saying, but the solution to high commodity prices is high commodity prices," said Steve Goldby, partner at venture firm Venrock.
But renewable energy isn't just competing against oil. Solar energy, for example, would also have to be cost-competitive with natural gas and coal. Though the prices of natural gas and oil used to move together, discoveries of massive amounts of shale gas in the U.S. have led to lowered prices for gas, even as oil prices rise.
Still, for the average driver confronting $4 gallons at the pump, rising oil prices could be a provocation to begin considering the merits of hybrid and electric vehicles. Cost-competitive alternative vehicles could not only lead more consumers to buy electric, but also make the sector more attractive to venture firms. More generally, it emphasizes the immediate, tangible effects of oil dependence.
"It makes investors, limited partners, realize that energy is going to continue to be a big issue," said Dennis Costello managing partner of Braemar Energy Ventures. "It recommits them or reinvigorates their commitment to the sector, even if it's long-term."
But while higher oil prices can serve to make renewable sources more cost competitive, many in the venture world say that there is no upper price limit that will serve as a tipping point for the industry.
Rather, they hope that the situation will encourage the public to think more carefully about energy--where it comes from, what it costs, and what alternatives are out there.
"It's a strong reminder for the country that it's almost 40 years since the Arab oil embargo and the first big spike in the early '70's," said Goldby. "The U.S. still doesn't have an energy policy of any kind. It's time to hunker down and really focus on sources of fuels that can be domestic and can be scalable."