Tuesday, September 12, 2006

Risks And Opportunities In Renewable Energy - VC Buzz

The annual European Energy Venture Fair was a good source of information on where smart investors could be putting their money to relieve some of the bottlenecks and pain points in the renewable energy sector, bulleted below.

Photovoltaics - High market demand for solar cells has led to a shortage of solar silicon worldwide, suggesting factories producing such silicon using alternative means have a golden opportunity, but also thin film, organic and dye-sensitized PPVs could make some inroads;
Wind Energy - two year waiting period to take possession of the large-sized wind turbines currently in vogue suggest room for startups or conversion of factories making smaller turbines to meet demand;
Biofuels - experienced engineering firms able to set up biofuel heat and power generation stations are overbooked;
Distributed Energy Production - computing and software solution required to manage and optimize energy production in increasingly distributed power generation networks;Ocean Energy - possibly at an inflection point - Thomson's Paris bureau chief, Michael Strauss says it's where wind power was about five to seven years ago;
Project Finance - new financing instruments are required to build renewable energy production sites worldwide. Italy alone could use €10B worth or private investment to reach its clean energy goals, according to Roberto Longo, Director of an association of renewable energy firms in Italy and chairman of ATMOS, an Italian private equity firm.

That's the good news. The bad news is that nothing has changed in terms of risks or constraints for investing in alternative energy, namely the effect of the price of oil and the reliance on government policies and regulations, things that experienced cleantech VCs will be familiar with.
But there's a new one to add to the list now: the idea of builiding nuclear power generating stations in Europe is "back from the dead", says Thomson's Paris bureau chief, Michael Strauss, who's been covering energy markets for most of his career.
The availability of relatively cheap nuclear power could cause a problem down the road because renewables are compared to competing methods of producing power - ie. the cost of burning oil or the cost of using nuclear energy.
On a purely economic level, as long the price of oil remains high and there is not a lot of nuclear energy in the market, it makes sense in many cases to use renewables.
Failing that then demand is driven in a large part by government policies, which affect the market in the form of subsidies, grants, and regulations that promote uptake of alt energy.
Businesses in general, as well as VCs, don't like operating in markets where policy-makers and politicians are in the driver's seat. But these are the risks that go with alternative energy investing and always have done. It hasn't kept the diehard specialist cleantech investors out of the market and the large number of them on hand at the event is proof of that.
For more generalist VCs, it's a lot to take on, we hear. The market constraints described above come in addition to the usual risks that they have deal with when investing in early stage tech companies, such as founder skills, market adoption, competition from incumbents, and technical hurdles.
Nevertheless, we think that we'll see some new names from the more generalist tech funds in our future reporting on alternative energy deals, but they will probably be co-investing with the specialized venture funds.

1 comment:

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