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A cleantech bubble (II)?

Whether a bubble exists with cleantech investing is arguable, but no one debates the remarkable growth of the sector, particularly when it comes to the hottest markets, like solar, wind, biofuels and fuel cells. Ganesh Ananth, from DTE Energy Ventures, talks about it.

For these “benchmark technologies”, the Clean Edge/Nth Power report Clean-Energy Trends 2007 reports on their continued “healthy climb”, documenting “annual revenue for these four technologies ramped up nearly 39% in one year -from $40 billion in 2005 to $55 billion in 2006.”

What is debatable is what will happen next for these hot (or overheated?) markets. Those from the Clean-Energy Trends report predict sustained growth: “We forecast that they will continue on this trajectory to become a $226 billion market by 2016“. Those from US analyst firm Lux Research, in their Cleantech Report, predict a “boom-and-bust scenario” in energy technology, “driven by solar and biofuels.”

While solar has already made some VCs some big money, the sector has left others more bearish on the technology. During the panel Harnessing the clean tech future at the Greenvest 2007 Conference in June, Lee Bailey (managing director and co-founder of the US Renewables Group) explained why his experience in management for Energy Conversion Devices left him cautious around solar investments.

“We started photovoltaic devices in the 1970s. We went through 6 oil companies- Arco, Standard Oil of Ohio, BP, then we went through Canon, then we went for Bekaert. The total investment from those oil companies over a 10 year period reached approximately a billion dollars.

The company over the 15 year life of that never made a penny of profit. So it’s only within the last year and a half that they’re able to sell photovoltaic panels such that they’re actually a cash flow break even. That’s a long time to be investing in research and development. A long time for shareholders to wait. And again a long time for a venture fund to wait for returns. And I think that experience certainly shapes the way I view the paradigm in energy is that it’s long and slow and slogging and conservative. Now there are opportunities, no doubt, I wouldn’t be in this business if there weren’t, but you’ve got to be careful.”

Where are the big firms putting their money? We talked to Ganesh “Ananth” Ananthasubramaniam, vice president of DTE Energy Ventures, whose parent company (DTE Energy) owns both traditional and cleaner energy investments.

  • DTE operates- through it’s electric utility Detroit Edison- 9 fossil-fuel generating plants, as well as a nuclear and hydroelectric plant (the latter is co-owned).
  • DTE also owns DTE Biomass Energy which is the 2nd largest methane-recovery firm in the US landfill industry, but they point out on their website that this is still an untapped market: “Of America’s 7,000 landfills, nearly 400 have gas-to-energy projects and another 600 are ready to be harvested. Clearly, the energy potential from landfills is still underutilized.”

When you’re investing the venture funds of a more than century old energy company, you look at the big picture for power generation. Ananth talked to us about why he’s still “bullish” on cleantech, particularly regarding what he calls the “only three or four sources of clean energy.”

Ananth: “The industry is in the early stages of growth. We do see an inflection point going from fossil fuels to non fossil fuels, from things that pollute to things that are sustainable and clean. And they’re designed in anticipation that solar is a part of that. You know some of the valuations in individual companies may be ahead of themselves. But we had taken a close look at First Solar, for instance, before it was acquired by the Walton Group and we believed that it has a lot of value left. It is cheap. It potentially can get solar down to where it can compete for the grid with things like coal. We think the days are not far off when a lot of buildings will have solar and we will see that wind, solar, and ocean power will come to about 20% to 25% of the total electrical supply. With nuclear making up another big chunk. So we are very bullish on cleantech.”

faircompanies: You’re talking about the hot topics, wind and solar. Do you think these are the strong investments?

We think that long term as long as global warming is an issue its got to be sustainable and clean and so there are only three or four sources of clean energy; biomass is one and almost everything else is related to that; either water, wind or solar. We think there’s as little amount of geothermal as possible. We think that you will have opportunities in biomass that can take biomass and convert it into liquid fuels. We think that the blend of coal in biomass can also make liquid fuels.

“But as soon as we have production limits on oil, and you have enormous growth both in Indian and China, we think that there will be a shift to cleaner more sustainable fuels that are cheaper. Once they become competitive, like wind is now competitive with natural gas electricity, we think that the shift to liquid fields from biomass will act similar. So you’re at the inflection point for the next 10 or 15 years. You still have the uncertainty: What is cheaper? What is better? We had this debate about digital at one point, digital or analog… Way back when? Now we know digital is the winner and we think sustainable technologies will be the winner, but it requires a longer time-frame than a 2-year horizon for your investments.”

And which will come first? You say wind is a bit in front of the others?

Wind is a little faster than solar is, but then solar is more widespread. It’s a little closer to home, you can put it on your home literally. But we think that it will be a mix. We think there will be a space for solar, for wind-wind, and for ocean power and for biomass driven technology.

Biomass, where do you see that fitting in?

We think that the most likely use of biomass is going to be for liquid fuels, to power transportation. There’s much higher power in electricity. But we’ll have to see it. We think again there will be a bit of a mix. A little bit of electricity, mostly for liquid fuels.