CONNECT Newsletter | April 15, 2008
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INSIDE INNOVATION - Clean Technologies
The Issues Inside Clean Technology
By Tana Karnchanakphan
As an emerging industry, Clean Technology faces unique and challenging issues. CONNECT approached two industry leaders (Mark Juergensen - Director, Sterling Energy and Dr. Greg Mitchell - Scripps Institute at UC San Diego) for their opinions on the issues that clean technology must overcome. Read More >>
The San Diego Perspective
By Tanya Kivman
Clean technology is taking off across the globe. Countries, states, and cities are racing to establish themselves as the hub of this growing new industry. If San Diego wishes to not just compete but to confidently stand as the clean technology center of the world, we are forced to introspectively examine the unique issues that we face here at home. CONNECT approached two prominent San Diego leaders (Lisa Shaffer - Executive Director of the UCSD Environment and Sustainability Initiative and Robert Sullivan - Dean of the Rady School of Managment at UCSD) to ask them this question. What are the issues that we face here in San Diego in the clean technology industry? Read More >>
Clean Technology Innovator's Profile - David Saltman, Open Energy Corp.
By Andrea Siedsma
In mid 2005, David Saltman, an environmental crusader and entrepreneur, was asked to take over a small oil and gas company and transform it into a renewable energy company. That firm, formerly Barnabus Energy and now San Diego-based Open Energy Corp., is leading the charge in the development of the latest in solar electric products and technologies. Read More >>
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The Issues Inside Clean Technology
By Tana Karnchanakphan
Mark S. Juergensen - Sterling Energy
Transitioning from product development to commercial operations is a difficult process. Financing a product through this period can be tougher.
Clean tech firms are receiving billions in early stage venture financing, but these eye opening sums may be insufficient to build the first commercially viable facilities. Clean tech companies carry unique financial challenges due to: capital intensiveness, long time to market, large facilities and mitigating technology risk.
At a recent clean tech finance conference, 43 of over 100 clean tech firms required more than $100MM to build a commercial facility. Capital intensive presenters included; solar energy, environmental controls, nano materials, waste to gas conversion, bio-fuels, water purification, etc.
Often clean tech firms face long periods before revenues can be generated. In deploying an advanced clean engine, fleet owners will want years of beta testing in small quantities before wider scale deployment. Which venture firms can stay in a deal where the exit is 5-8 years from the initial “A” round? Which VC’s have infrastructure funds to build the first commercial facility?
Many clean tech facilities can be large, whether a biofuels processing plant or a manufacturing unit to build clean engines. Few companies build capital intensive facilities with 100% equity. The intrinsic value of debt leverage to improve investment returns and allow for rapid production expansion is easily seen with even the most basic pro forma financial model.
A fundamental shift in perspective and financing approach from “product to project” is useful for clean tech. However, for clean tech firms to use traditional financing sources they must address technology risk. Large facilities include site development risks with potentially millions in cost per site.
Funding and Technology Risk
Technology risk for the product buyer can be solved with warranties. Addressing technology risk for debt and equity sources for the first commercial facility is difficult.
Either a large venture fund places 10 to 100’s of millions in equity and assumes technology risk, or clean tech firms work with traditional financing sources. Traditional equity and debt providers will require the clean firm or its construction and design firms to provide production or performance guarantees to deal with issues such as technology risk. This can include very expensive letters of credit or performance bonds.
This leaves a large gap between venture funding and the first commercial facility. Clean technologies that look promising may not get to market. However, government support in the form of “technology risk insurance”, loan guarantees or other similar vehicles could substantially close this gap with modest or no cost to taxpayers. A no cost option is copying OPIC which was created by the US in 1971 as an agency to help US business mitigate risk selling internationally with no net cost to taxpayers. It pools political risk and charges market based rates for risk policies. A US back entity could pool technology risks either through a purchased insurance policy or provide loan guarantees.
Let’s ensure new clean technologies get to market by working together on these issues.
Dr. Greg Mitchell - Scripps Institution of Oceanography at UC San Diego
Among the most important issues facing society today are the planet’s climate challenges. There is a need for alternative energy solutions that are safe, economically driven, and that help society reduce greenhouse gas emissions.
This week, a coalition was launched in San Diego to explore alternative bioenergy generated by microscopic photosynthetic organisms, primarily algae. The time is right to expand this promising area thanks to several significant events that offer new opportunities.
Last week the California Public Utilities Commission approved the launch of the California Institute for Climate Solutions, which will foster private and academic research on cutting greenhouse gas emissions and renewable energy.
UC San Diego researchers are meeting today to discuss algae commercialization and research and development. They come from a variety of disciplines, including my laboratory at Scripps Institution of Oceanography, the Division of Biological Sciences, Division of Physical Sciences, the Jacobs School of Engineering, and the Rady School of Management, among others. This interdisciplinary committee, chaired by Division of Biological Sciences Dean Steve Kay, will work within the academic community and also with utilities and private industry in forming solutions based on algal bioenergy. Next week the committee will meet with City of San Diego officials to explore further possibilities.
Why algae? Algae yields for bioenergy are extremely high, producing five- to 10 times more bioenergy molecules per area per time than any terrestrial plant. Nothing else comes close. With respect to sustainability, algae agricultural systems can be established on non-arable land, using saline waters from aquifers or sea water (not fresh water). Algae can take up nutrients from wastewater and carbon dioxide from power plants that are otherwise considered pollutants. At large scales, residual protein can be converted to animal feed.
The challenge today is to identify the most sustainable methods to achieving large-scale algae bioenergy production that is economical through biological and engineering solutions. In the near-term, continued research and development efforts are required, along with pilot demonstration facilities.
Why San Diego? San Diego is the perfect place to move algae bioenergy forward, with UC San Diego’s strength in algae research at Scripps and other biological strengths, along with the region’s robust biotechnology industry, and regional engineering and technical talent to take the knowledge forward into the market. CONNECT and CleanTECH San Diego are creating a framework for more effective collaborations in bioenergy.
The potential of algae as a bioenergy source has been proven in the laboratory and earlier Department of Energy research programs, and now it’s time to pursue larger-scale pilot facilities.
Learn more at the Scripps Photobiology Group website:
www.spg.ucsd.edu/algae.html.
The San Diego Perspective
By Tanya Kivman
Dr. Lisa Shaffer - Executive Director of the UCSD Environment and Sustainability Initiative
The corporate sector is an essential player in addressing the challenges of providing a sustainable future, where the “triple bottom line” of profit, people, and the planet are all benefiting. Clean Tech is a term used to describe those technologies, goods, and services that meet customer needs while avoiding harm to the environment, such as renewable energy, or mitigating impacts of past activities, such as carbon sequestration or re-use of waste materials in new products.
The challenges start with doing enough, and fast enough, to really make a difference. San Diego has all the assets needed to be a leader in Clean Tech – intellectual resources, an entrepreneurial spirit, an attractive location, and access to the Pacific Rim and Latin America. We also lack a highly visible public sector commitment to sustainability in the community. Unlike some city-regions, climate protection and green business practices are not at the top of the political agenda. There are many dedicated and hard-working individuals working on excellent programs throughout government agencies in city and country governments, but there is no senior statesman for the environment. At the San Diego Sustainability Business Forum in March 2008, many participants recommended the creation of a sustainability ombudsperson reporting directly to the Mayor, to facilitate and expedite new policies and practices such as innovative building materials and energy conservation technologies. Public pronouncements are important, and allocation of human and other resources are even better in translating philosophy into action. Getting past the perception that “going green” imposes additional regulations or taxes or both, will be essential in forming effective partnerships between the public and private sector that are essential for a successful Clean Tech cluster to develop.
There are tremendous ideas and talented individuals trying to make their contributions. There are world class research institutions and a strong education and training infrastructure for providing the workforce for the Green Economy. With political leadership and continued progress in coordination, partnership, and innovation in policy and practice, San Diego can realize its potential in developing and nurturing solutions to the challenges of a sustainable future.
Robert Sullivan - Dean, The Rady School of Managment at UCSD
Clean technology is emerging as the new “hot area” for entrepreneurial opportunity, job creation and overall economic development in San Diego. It aligns well with the increased awareness of environmental concerns both at home in San Diego and around the world. The national political campaigns have also seized the opportunity to highlight relationships between energy, national security, economic growth and environmental sustainability. Clean tech as a new industry cluster lies at the nexus of anticipating concerns, defining opportunities and delivering solutions.
An opportunity for the clean tech industry is to leverage private sector initiatives with the extraordinary discoveries occurring in the research laboratories across the region. Like in high tech and biotech, San Diego scientists are pushing the envelope, and their breakthroughs offer opportunities to address important questions and environmental challenges. The industries of San Diego, working with the research universities, can improve the process of taking discovery to the market, and consequently have a positive impact. The research and discovery base of San Diego is a key differentiator for this emerging industry cluster. How can it be better capitalized on?
Finally, because San Diego has an unparalleled capacity for addressing big environmental challenges, it should also have the ability to incubate very early stage concepts and companies. This requires early stage investment. Only in the past few years have clean tech startups garnered the interest of traditional venture groups. But unlike most venture investing taking place in San Diego, clean tech requires early stage capital. This of course means higher risk; but we believe higher expected opportunities.
Just as San Diego is known as the wireless capital of the world, it also can lay claim to being the environmental capital of the world. It’s been 50 years since Scripps Institution of Oceanography’s Charles David Keeling began documenting the increased levels of green house gases in the atmosphere. By building on Scripps global brand, by levering the research of the universities and institutes and by mobilizing the necessary investment capital, San Diego can make this new industry cluster an important economic driver for the future.
While the San Diego clean tech industry cluster has come a long way in a short time, much still needs to be done. This is a community opportunity. It will require the San Diego private and public sectors to work together with common purpose and with a cooperative spirit.
Important questions must be asked regarding the current problems. The relationship Clean Tech has with biotech and high tech must be identified. What is meant by a clean tech company? Additionally, consulting firms are emerging to address issues of green supply chain, green product design and more. And there are investment funds that specialize in socially responsible companies. So, when clean tech is mentioned, can we better define and describe the industry opportunities? Can we provide greater clarity and brand identity that highlight the importance of this new San Diego cluster of excellence? Clarity must first be established and further reestablished before true progress becomes evidently visible.
Clean Technology Innovator's Profile - David Saltman, Open Energy Corp.
By Andrea Siedsma
In mid 2005, David Saltman, an environmental crusader and entrepreneur, was asked to take over a small oil and gas company and transform it into a renewable energy company. That firm, formerly Barnabus Energy and now San Diego-based Open Energy Corp., is leading the charge in the development of the latest in solar electric products and technologies.
Unlike most photovoltaic firms, Open Energy specializes in roof-integrated solar tiles, which match the colors and edge profiles of traditional roofing tiles. Open Energy’s SolarSave tiles do not require external racks or roof penetrations commonly used by other solar panels installed on commercial or residential rooftops. Building Integrated Photovoltaics (BIPV), which Open Energy designs and manufactures, is deemed to be one of the fastest growing segments of the photovoltaic industry.
When Saltman took over the publicly-held Open Energy, he sold off the oil and gas assets and raised more money from hedge funds, then bought two building integrated photovoltaic companies, and licensed a third solar technology from scientists at Los Alamos Labs. Under Saltman’s leadership, Open Energy has aligned itself with some of the best in the building, manufacturing and clean technology industries.
“We have worked very hard at our brand,” Saltman says. “We have focused or efforts on meeting our customers’ needs, not just building commodity products. We thought about aesthetics as well as cost efficiencies. We believe that if we build the right products we can actually enlist the traditional building trades to install and service them. Our vision is to make solar systems an integral and inspiring part of the built environment. We want to make solar affordable, beautiful and easy to install.”
Saltman and his team are definitely on to something. In the midst of sinking housing prices, rising foreclosure rates, record-high oil prices, declining consumer confidence, and a looming recession, 2007 was another excellent year for clean energy, with no signs of slowing down this year. That’s according to Clean Edge, a market research firm that has been tracking the clean energy markets since 2000.
Clean Edge reports that solar, wind, bio-fuels, geothermal, energy intelligence, hybrid- and all-electric vehicles, advanced batteries, green buildings, and other clean-energy-related technologies and markets have provided bright spots in an otherwise dull economy.
According to Clean Edge, there was a 40 percent increase in revenue growth for solar photovoltaics, wind, bio-fuels, and fuel cells in 2007, up from $55 billion in 2006 to $77.3 billion in 2007. For the first time, three of these are generating revenue in excess of $20 billion each. New global investments in energy technologies—including venture capital, project finance, public markets, and research and development—jumped 60 percent from $92.6 billion in 2006 to $148.4 billion in 2007, according to research firm New Energy Finance.
Meanwhile, venture capitalists in the United States invested $2.7 billion in the clean-energy sector, representing more than 9 percent of total VC activity. Solar photovoltaics (including cells, modules, system components, and installation) will grow from a $20.3 billion industry in 2007 to $74 billion by 2017. Annual solar installations in 2007 were just shy of 3 GW worldwide, up nearly 500 percent from 2003.
Saltman, a true pioneer in the clean tech space, believes that over the next 40 years renewable energy is going to account for more than half of all energy produced on earth.
“Solar electricity represents only about 1 percent of the 14 trillion watts mankind currently consumes,” he says. “We are witnessing the very beginning of what will be a tremendous business opportunity, one which is already growing at 36 percent a year. The capital is now moving into the marketplace and is not only driving capacity but it’s also driving innovation at our universities, in government labs and at companies around the world.”
He also believes that solar power will become cost competitive with grid power at the retail level between 2011 and 2012, which will further accelerate the market.
“The moment that happens, everybody in Southern California should have solar on their roof or carport,” he says. “What we’re trying to do is transformative,” Saltman adds. “We must transition from the extraction and combustion of fossil fuels to the deployment of innovative technologies capable of harvesting the power of sun, wind, water and our own waste in order to bring these changes about.”
While clean technology may be all the rage these days, Saltman says the industry still faces many challenges, in particular raising money.
“This industry requires significant amounts of capital,” he says. “We’ve had to raise money during a very difficult time. While there’s a lot of interest in solar energy and in clean technology, there’s a great deal of uncertainty regarding how rapidly these technologies will be adopted, and their current reliance on government support in the form of tax incentives and state rebates. Our federal government has yet to develop a consistent, long-term renewable energy policy … We need to have a more comprehensive and committed support of renewable energy in America. The industry will not really take off until that happens.”
One way the clean tech industry will find support along the way is through organizations like CONNECT, Saltman says. CONNECT recently led the charge to form CleanTECH San Diego, a consortium that accelerates the growth of early stage companies with environmentally friendly technologies and green enterprises to promote a sustainable planet.
“Once again CONNECT is showing tremendous leadership in this regard and will be instrumental in helping launch San Diego as a center for clean tech in America,” Saltman says. “We have world class universities and research institutions, major energy and water companies, biotech labs, not to mention a beautiful environment to work and live in. All the ingredients are here (in San Diego)."
Saltman says pressure from eco minded citizens will also help fuel the clean tech industry.
“We have reached a tipping point in our society. The majority of our citizenry recognize the threats or potential risks of global warming,” he says. “At the same time, Americans don’t like the idea of dependence on foreign oil and they don’t like the health impacts of burning coal and the pollution it creates.
“This is no longer an environment versus business issue,” Saltman continues. “This is where ecology and economy align. That’s what the clean tech industry is all about.”
Saltman’s eco business epiphany occurred back in the mid 1980’s when he helped form the world renowned environmental activist group Surfrider Foundation. Although such groups have made significant impacts on environmental awareness, Saltman realized that the environment was too important to be a charity and that the only forces strong enough to bring about rapid change to save the world were economical ones.
In 2002, Saltman was part of a management team led by Robert Noble, now CEO of Envision Solar, that formed Gridcore Systems International, which utilized waste cardboard and molded it into honeycomb panels that replaced particle board. Saltman went on to pioneer bio-composites in America when he brought over German technology that utilized natural fibers such as hemp, jute and flax to reinforce polymer plastics. This material is currently used in millions of car interiors at Ford, General Motors and Saturn.
As he looks back at the eco business path he has created, Saltman, a former entertainment industry exec, is not only happy with his accomplishments, but more importantly he’s pleased with the response and action taken by like-minded entrepreneurs, corporate America and everyday citizens who are looking for ways to help save the Earth.
“It’s great to be a pioneer most of your life and then be passed by in the flash of an eye,” he says. “Being obsolescent is a good thing. When I don’t have to pioneer anymore that means we’re winning. It’s very important when big business embraces the concept of sustainability, and when environmentalists recognize that you have to create sustainable green businesses in order to be successful (in protecting the environment).”
Saltman adds that it will be imperative to the clean tech industry to continue forming partnerships with the building industry, as well as with the major utilities and energy companies.
“The more that clean tech firms can create synergies and build alliances with the major multi-national corporations, the more effective we’re going to be in not only making money but also in saving the world. That is, after all, the real goal, isn’t it?
