Six or seven years ago the broader venture capital community took an interest in energy as a category for venture capital investing. Storied venture capitalist like John Doerr and Vinod Khosla began to give speeches, raised lots of capital and put down some bets. Many firms were already making sizeable investments but not the headliners. The idea that energy might be "cool" began to percolate into the ethos of Silicon Valley. So why did this begin to happen, where are we today, and most importantly, where do we go from here.
How did energy become a hot investment area?
Hard to recall exactly what were the hot investment sectors six years ago, but for venture capital technology was not a hot investment sector. Healthcare was still hanging on as a good market for investments but not going gangbusters, either. Entrepreneurs and some VCs noticed the rising public discussion about climate change. In the news, for example, was the Kyoto Protocol adopted by the world was now in force in February 2005. The IPCC, a world-based organization founded in 1988, which few people knew or cared much about issued a report in 2007 sounding the alarm bell on climate change. This brought the concern for climate change to the world's scientific community and the topic above the crease on the front page of every major newspaper and media outlet, and on the lips of every politician.
Entrepreneurs are quick studies of hot trends and opportunities. In the Silicon Valley many successful IT entrepreneurs with VC relationships from the decade of the 1990s took an interest. They quickly concluded that a change in the American energy landscape was an opportunity in the making and thus began to team up with the scientists and engineers in energy, many from the 70s revolution in solar innovation. Together they put out business plans all along Sand Hill Road seeking capital. I recall one year Venrock saw over 80 solar investment opportunities. VCs are nothing if not recognizers of patterns. Entrepreneurs were forming up new energy companies and so the VCs quickly followed suit rationalizing there would be a big payoff because the markets were huge and new technology was emerging.
What was driving the energy investment opportunity?
During the 2000s, the Bush Administration mostly turned a blind eye to the discussion of climate change. After all, it was fighting a significant war that many would argue was about energy, in particular oil. Also during this decade the world watched the rise of China's economy and its energy-consuming middle class. This new demand on energy impacted world energy prices practically over night. In 2010, China's total energy output equaled that of the United States for the first time ever even though its economic output was still about 25 percent that of the United States.
During this decade the world saw oil prices hit an all time high of $145 per barrel in July 2008. It was amazing how quickly Americans changed driving habits; some even bought Priuses as fast as these new hybrid cars could get to our shores.
Of course the world economic crisis of 2008 revealed the fact that every country had too much debt. The governments of many major countries enacted emergency legislation when they realized they could not pay their debt but had to keep their countries afloat and productive. Nonetheless, the Great Recession set in.
As the decade came to a close, the personal pain of high unemployment and recession unsettled most of the developed world. All of the drivers for new energy solutions -- recognized climate change by the authoritative IPCC, economic prosperity and rising energy consumption of the world's most populous country, China, and the daily reminder that the United States was in a protracted war where it gets 22 percent of its oil supply signaled that business as usual in energy was not acceptable.
So where are we as 2011 closes out and 2012 begins?
Here are some facts to consider. In March of 2011 the world witnessed a colossal nuclear power disaster at Fukushima, Japan resulting from nearly the worst earthquake and tsunami ever. The outcome is likely a significant delay in the nuclear renaissance in the developed world and the outright abandonment of nuclear energy in Germany. The developing world has no choice in the matter if they want to grow. They are and will continue to deploy nuclear power.
Oil and gas exploration is booming since the U.S. figured out that shale gas was essentially everywhere, cheap to extract, and domestic. Rig counts are up and unemployment in O&G is at an all time low. Oil on the world market fluctuated wildly from about $70 to $120 a barrel as the Arab Spring happened this last year and has now settled at just over $100 a barrel. No one thinks it will go below that price for the foreseeable future. Most of the progressive countries in the Middle East completely depend on oil prices above $80 to support their government programs. Letting the price drop puts those governments at risk. Here in the United States the price of gasoline is 70 cents lower than its high in the spring of 2011 citing reduced demand. It appears that $3.50 to $4.50 a gallon for gasoline evokes behavior change in Americans to cut back their demand.
Unfortunately a vocal minority continues to challenge climate change. They say that recent data suggests that the some glaciers are not melting quite as fast once thought and some not at all. The same data also suggests that the polar ice cap is melting enough to open shipping routes over the top of the Earth in the coming years. CO2 is a main culprit. It is both naturally produced and man-made. We must step in now with technologies to reduce the use of fossil fuels, a key contributor to CO2. Not doing something about CO2 production and risking the known dire consequences of that decision would not be a wise choice for the planet.
In 2011 the world population surpassed 7 billion. General consensus is population will top at about 10 billion a few decades from now. The real impact on the planet of this growth in population is the transformation going within the societies of the world's developing nations. For fifty years North America and Europe, with some Japan, dominated the world's output and consumption based on their stable middle class populations. That is changing before our eyes. The OECD in 2010 estimated the world's middle class in 2009 to be about 1.8 billion and projected it to grow to 3.2 billion in 2020 and 4.9 billion in 2030. Almost all of the growth, 85%, is projected to come from Asia. As a percentage of the total middle class, the world's consumers from the developed world will decline and the world's consumers from the developing world will dominate. We know from history that energy is a fundamental driver of this growth and prosperity. The result is massive increase in energy demand for the world, perhaps as much as 50 percent higher from today's levels by 2035.
In 2012 the United States will have a presidential election. All the candidates on the Republican side largely poo-poo climate change science and essentially advocate "drill baby drill" to address the United States' energy needs for the coming decades. President Obama, who came to office with energy as one of the legs of his policy stool, seems to have abandoned energy as a platform position, yet he was so close to a national energy policy in late 2009. And then you complicate the alternative energy discussion with the spectacular California-based venture capital flameout of Solyndra, which had also been backed by the U.S. Government to the tune of $535 million. No national politician is going to go any where near alternative energy as exemplified by solar. They will all say let's do more of what we are currently doing since it appears to be the least risky course. This all translates to "do nothing!" This is nonsense and fool hearty and is the most risky of choices.
Where to from here?
The forces that put the United States at a crossroads in 2005 -- climate change science, economic needs for new industry, and desire for national security -- are as real as ever and must be addressed by our body politic. The world will not stand still waiting for America.
In the Silicon Valley and around the country, the entrepreneurial spirit of the great United States went to work over night in the last decade. It is still hard at work on these problems. In the recent past, optimistic entrepreneurs started thousands of energy companies across the spectrum of energy opportunities. These companies were backed by venture capitalist who invested billions of dollars. To date, 23 venture-backed energy companies have gone public and many more are making themselves ready. While some companies do not survive, of course, there are many spectacular examples of winners. Tesla, the electric car company, appeared out of nowhere demonstrating that in America a new car company can indeed be built. Bright Source Energy is building huge utility scale solar power plants on U.S. soil. A123 is building batteries capable of industrial and grid-scale applications. The list goes on and on.
America needs to keep doing what it does so well -- innovate. Innovation costs money. Venture capital must keep investing in energy startups that make economic sense. Public investors who provide the real growth capital for young companies need to come to the capital markets and buy those stocks. As a key source of innovation funding, the U.S. Government must keep putting R&D dollars into the market through its many programs including ARPA-E. It is this partnership of entrepreneurs, investors, and the U.S. Government that will keep the United States a leader in new energy technologies.
My hope is that the new generation of political leaders, young entrepreneurs, and venture capitalists with long-term points of view can rally to the cause of changing America's energy future. It's not about being green or not being green. Such labels are deceiving and simple. It's about being smart, making good investments and working hard. It's about painting a vision of the future and then investing in that vision and seeing it through.
Where do we go from here? My bet is up and to the right.
We get regular leaks at US plants, ongoing contamination, new issues arising regularly and it all requires massive taxpayer dollars.
Risk reward on nuclear only makes sense when risk costs are shifted onto the public as they have been.
The extraordinary thing about Fukushima is that although almost 25,000 Japanese died as the result of the earthquake and tsunami, no one died directly from the nuclear accident or from the release of radioactivity. The buildings and containment structures survived as they were designed. This, despite a wall of water 45 feet high with incalculable force.
Each year, thousands of people are killed in coal mine
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accidents around the world. In 2010, 2,433 people were killed in China's mines, the world's deadliest.
Yet it was nuclear that had the world holding its breath. As with all accidents or even incidents, nuclear is held to a standard of safety that is orders of magnitude stricter than is applied to any other industrial activity, including other big energy undertakings, like oil refining, chemical production and transportation, and aviation.
http://www.twincities.com/opinion/ci_19648092
The MMS was a good example of government employees enforcing environmental safety.
China is using their hard earned and newly created wealth to accelerate their scientific capabilities, including their nuclear weapons and their rocket delivery systems.
Chinese nuclear weapon technology and other capabilities will soon surpass the USA scientific technology.
The Chinese now have had the Rocket Guidance technology (purchased from Hughes Aircraft in the 1990's in return for a political campaign contribution via Chinagate bagman Johnny Chung) for intercontinental ballistic targeting anywhere in the USA (and anywhere else around the world). The Chinese missiles would not fly on course before this technology purchase.
To claim that China had no precision global strike capability until 15 years ago is highly unlikely. They may have better and more reliable now, but they had quite adequate ICBMs from the beginning of the 1980s.
I do not think that they are talking, but I would like to be a fly on the wall.
The LFTR, The IFR are two key technologies that will require an infusion of venture capital. These reactor concepts are not new.
The fact that nuclear technology has been largely stifled is no fault of the innovation process. Innovation will continue in the technical sense.
What really needs to happen is a reversal of the Clinton State of the Union speech where innovation in nuclear was squashed. Our policy leaders must allow new innovations in this technology to move forward. These innovations answer safety, waste, and economics.
That would put a lot of antinukes out of business since nuclear energy isnt their beef - its centralized government and the way they feel they have no power over their lives.
This is the only way we can truly uncouple humanity's energy needs from fossil fuels.
See the Science Council on Global Inititatives at www.thesciencecouncil.com for a science-based view of possibilities for an abundant energy future in a post-carbon world.
As a result you would be very unlikely to get any money from them for the items on your shopping list. Have you considered trying more likely sources of development capital, like perhaps visiting Las Vegas?
If you have any specific key technologies in mind that could be used in such devices, the situation may be different. You might find some gamblers who are feeling generous and willing to take a very long view.
"investment in fossil fuel development...for the next 150 years." Not going to happen, not even for the next 90 yrs, because reality on the ground will increasingly become obvious to everyone as global temperature continues rising -- 4F or more by 2060.
Translation: Increased energy and moisture in the atmosphere will lead to more and more unprecedented destructive weather related damage with greater loss of live. Katrina was a prelude. Expect greater frequency.
I'm an American, but I don't share your view that the "green movement" has anything to do with liberal politics, and I will defend my choices as an energy consumer and producer. There is no manufacturing to rebuild in the USA.
Did it ever occur that the green industry's best years might yet be ahead? Especially when some green company takes your trash, your poop, your junk, your garbage, your hazardous wastes, and your yard trimmings, and turns it all into a clean, biodedgradable, 138 octane liquid fuel that drops right into your gas or diesel engine with no mods, and is blessed by the EPA.
Yea, a breakthrough with green fuels is a slim possibility.
Have fun getting up to speed, and let us know if you have any questions.
http://www.biorootenergy.com | http://www.tenmillionpeople.com
utilities over the past 40 years to deal with waste disposal. This fund should be used to
develop fast reactors that consume nuclear waste, and thorium reactors to prevent the
creation of new long-lived nuclear waste. By law the federal government must take
responsibility for existing spent nuclear fuel, so inaction is not an option. Accelerated
development of fast and thorium reactors will allow the US to fulfill its obligations to dispose
of the nuclear waste, and open up a source of carbon-free energy that can last centuries, even
millennia."
http://www.columbia.edu/~jeh1/mailings/2008/20081121_Obama.pdf
Nuclear “Faustian Bargain” Legacy should be exploited not buried for 10,000 years.
“Nuclear waste” is not waste it is "WAMSR nuclear fuel" or “LFTR nuclear fuel” via Kirk Sorensen??
MIT WAMSR
http://www.youtube.com/watch?v=AAFWeIp8JT0&feature=player_embedded
LFTR
http://www.youtube.com/watch?v=rv-mFSoZOkE
Grid-scale energy storage does not exist, nor is it likely to at any appreciable scale. Venture capitalists, make sure you have a plan that adds up! The rapid growth of solar and wind is seductive, but it has been fueled by large government subsidies. While these projects may make money now because of the guaranteed subsidies, feed-in tariffs, etc., our debt-ridden world will not sustain this subsidy structure at the large scale required for a post-carbon economy.
All fossil fuels have large externalized costs. Renewables have large subsidized costs, and are limited by the physical limits of intermittency, variablility, lack of energy storage, and the inefficiencies of harvesting and transmitting dilute energy sources. Nuclear power is the only scalable, non-carbon energy source that has already internalized most all of its costs, from cradle to grave. The cost of fuel has an almost insignificant impact on the cost of delivered power, because of the incredibly large energy density of fissionable materials.
See Dr. Barry Brook's www.bravenewclimate.com for very objective and informative discussions about climate and energy policy.
The solution is simple: All residential homeowners currently pay local energy providers for monthly electric service. The exact same monthly payments could be applied as monthly installment payments to pay for roof-mount solar panel installations -- with payoff typically in ten years -- and another 25-30 yrs continued operation for FREE electric/power generation because panels last 35-40 yrs..
Federally funded loans, managed by local energy providers, would be the catalyst to unleash pent up demand for solar panel installation.
Naturally, demand for electric cars would follow. And then, American energy independence would follow with massively reduced carbon emissions.
the policy solutions are already known, but if Big Energy (like the hideous wilderness-killers Bright Source cited in the blog post) continues to dominate our nation, we will keep slaughtering healthy ecosystems and endangered species, monopolizing energy supplies in Big Banks and Big Energy and destroying our economy, climate and environment.
Venture capital needs to raise a wet finger to the wind of populism and get out ahead of the renewable revolution, instead of following Chevron Solar and BP Wind around like simpletons.
If the NOAA and NASA are correct, solar storms that can collapse critical power grids worldwide for years must now be considered reasonably probable.
Nuclear plants without grid power for a month are meltdown candidates. There are 433 of them worldwide.
Decentralized energy must urgently become an extremely high priority. Begin with rooftop solar.
Next look at Black Swans - highly improbable innovations with enormous implications.
See Cheap Green, Moving Beyond Oil, Running on Water and Black Swans on the Aesop Institute website for some surprising examples.
The Introduction to that website outlines the threat. It also suggests what can be done to prevent the worst.
Venture capital rarely supports the Black Swan technologies. With wisdom, it can make a huge contribution to accelerating surprises that can change the energy landscape if development, validation and production move to a 24/7 footing fast enough to matter.
A few hundred million lives may be at stake. Perhaps even human life on planet earth.
A few months after Pearl Harbor was bombed, a bomber was built every 59 minutes. Who would have believe it possible.
Can the venture community make what needs to happen, happen. Probably not. But, a few bold individuals and organizations might decide it is well worth a try.
See Cheap Green on the Aesop Institute website for more on this subject.
http://en.wikipedia.org/wiki/Energy_Catalyzer
Customer Orders to facilitate a Sale.
Blind Investment in Balance Sheets is a waste of time and $$$.
It works because it clears the the Hype about Business Plans !
No VC would have made Loans to most of these Firms.