Let it flow: Can venture capital break our cleantech bottleneck?

By Giles Parkinson on 23 May 2012

Australia has long been a rich source of ideas, but a barren land for those seeking venture capital to help develop them. Just to give an example, some $9 billion is funneled into research every year, but only around $100 million is available for commercialisation, creating what Graydon Smith, the manager of venture capital funds at AusIndustry, describes as a “massive hour glass effect.” Little wonder, then, that so many Australian technology developers and IT and cleantech entrepreneurs beat a path to the US, and Silicon Valley in particular.

That bottleneck is about to be eased following a major of injection of new funds into the VC market, specifically for renewable energy and cleantech developments. Southern Cross Venture Partners, the US-Australian VC fund manager which won the government’s Renewable Energy VC mandate with the help of $100 million from China’s Softbank, is expected to announce its first investments in the coming weeks.

Just to confirm the hour-glass analogy, Southern Cross managing director Gareth Dando says the company has been flooded with “hundreds” of applications, proposals and inquiries since the mandate was first announced last December. “There has been an avalanche of interest. People have been waiting on this for a while,” Dando told RenewEconomy in a rare interview. Interestingly, a lot had come from biofuels and waste-to-energy technologies, with a range of others relating to wind, solar, and enabling technologies. “We are seeing a lot of genuine innovation,” he said, before adding: “We have no particular view on which technologies (it would favour).”

The Renewable Energy VC fund will focus on generation, along with hybrid solutions and enabling technologies (such as batteries and grids). But Dando said the size of the fund – $200 million – is significantly bigger than any that have preceded it. “The other funds have not had the capacity to make the investment that we can… so it will change the game in that respect, and give them more certainty about the availability of funding.”

Essentially, it means more capital over a longer time frame. Dando told the Eco Innovation Forum in Sydney on Wednesday that the fund envisages making 10 to 15 different investments, and could invest up to $10-$20 million in each of them, over several rounds, targeting companies with revenues of up to $20 million. It will also consider smaller investments. It has a longer time frame than most VC funds, with an investment term of up to 13 years. “We are investing in stuff that can take a long time to come to fruition,” he said.

Dando says the role of Softbank was important. While Silicon Valley was the centre of the universe for IT and social media, the energy industry was more focused towards China, which offered more opportunities to sell technologies and develop business. “We see this as more of a Pan-Pacific opportunity,” he said. He added that likely strategic partners included a range of large energy companies, equipment manufacturers and industrial groups.

Interestingly, another VC fund involved in the renewable energy space, CVC Ltd, said it was particularly attracted to technologies that could reduce the cost for consumers – such as solar PV, energy efficiency technologies, and distributed generation, including gas.

CVC Investment Manager Philip Galloway told the Eco Innovation Forum the company was sitting on “a lot of cash” following recent exits, including from the ASX-listed Environment Group just last week. It already has investments in Wind Corporation, wave and tidal energy developer BioPower Systems, and a battery technology company.

CVC, which invested in geothermal aspirant Geodynamics before its listing, as well as bio-plastics group Plantic, said the sharp falls in the cost of solar PV in recent years had been bad for R&D and manufacturers, but presented excellent opportunities for those technologies or business models that could deliver energy to the customers cheaper than the grid.

He said it was clear that cost reductions and innovations in financing, along with the rising price of “black power,” meant that consumers – both retail and commercial – were looking for alternatives. Shopping centres and industrial parks were looking at long-term power purchase agreements that locked in the “green line” (his reference to the lower cost of green energy) and sharing the cost and benefits among all leaseholders.

“We like everything consumer-facing,” he told the forum. “Consumer demand is out there for ideas and ways of living greener – it is clear that that has survived all the brouhaha over carbon taxes and politics in Canberra. People want to live cleaner and simpler lives. In LA airport, where I was yesterday, they are advertising Nissan Leaf (electric vehicles), GE is advertising wind turbines. We don’t see so much of that being tapped into yet in Australia.”

He also noted that the industrial response to energy efficiency solutions was “incredibly slow”, particularly compared to Europe and the US. But any pitch to those large energy users had to be about saving money. “If you pitch to them on being green, nothing much will happen.”

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Markets • News & Commentary • Renewables clean technology, solar PV, venture capital

http://www.peakoil.org.au Dave Kimble

The cost of solar PV has fallen – not because of better technology, but because of the artificial over-capacity created by the heavily subsidised Chinese industry. This is causing its competitors to fall by the wayside as cheap imports flood in. This is confirmed by recent bankruptcies in the US and the imposition of protective tariffs, see http://www.bloomberg.com/news/2012-05-17/u-s-imposes-anti-dumping-duties-for-chinese-solar-imports.html

Since a large part of the cost of production is for the energy used in manufacture, the acknowledged future increases in the price of energy will mean that PV is always one step away from commercial success.

PV advocates should prepare an energy budget for the full life cycle of their proposed industry scale-up – energy in and energy out and the time delay between the two, when it will become clear that demand for PV panels translates into a demand for the fossils fuels needed to make them. The same thing should be done for other renewables and nuclear, and factoring in the need to reduce fossil fuels for greenhouse reasons. Then we will see that the world has a serious energy problem that is not compatible with a growth economy.
Bonzo

Hour-glass effect, valley of death, call it what you will, there’s no doubt Australia’s cleantech entrepreneurs will continue to tread the well worn path along the likes of Silicon Valley’s Sand Hill Rd to pitch to US venture funds if they want any chance of securing the risk capital they need to bridge the gap between startup and becoming sustainably cash-flow positive. These folks are only learning what entrepreneurs from other disciplines have known for years, that there’s a systemic dearth of VC funds on offer in Australia. But what else would you expect in the “lucky country” where the investment sector presents ample low risk alternatives to chose from?
michael r james

Dave Kimble at 5:41 AM

While it is true that China has most likely been dumping, the cost of manufacture of solar PV has also been dropping (as it has been for ages, just not quite at the rate of computer chips under Moore’s Law). All manufacturers including American and German have been reducing their manufacturing prices but cannot keep pace with the Chinese, partly because of alleged dumping and partly because of the scale (in turn, supported “artificially” by government demand).

In addition you claim about energy-intensive silicon production is not true (below).
Further, technology and manufacturing processes keep reducing the amount of silicon needed, and of course most predict organic chemistry will do away with silicon entirely (for printable cells etc).

["Very pure silicon (>99.9%) can be extracted directly from solid silica or other silicon compounds by molten salt electrolysis.[18][19] This method, known as early as 1854[20] (see also FFC Cambridge process), has the potential to directly produce solar-grade silicon without any carbon dioxide emission at much lower energy consumption.”]
- http://www.peakoil.org.au Dave Kimble
  
  michael r james
  My claim was about the full life cycle costs of the industry, not just silicon production. For example, the silica needs to be mined, with heavy machinery that needs to be manufactured, fueled with diesel, loaded into trucks and transported over bitumen-covered roads to the smelter.
  
  The smelter, if that is the correct term, needs to be built and fueled. The factory making the panels needs to be built to very clean air standards, and then needs to be filled with whatever hi-tech machines you choose. If you choose wrongly, they will have a limited production life, and therefore a high energy overhead per panel produced.
  
  PV cells are not just silicon, and the panels need wiring, top and bottom plates and frames. The panels need to be packaged and distributed to the retailer and the end user, and then they need to be installed on roof-tops and wired up by qualified electricians. The installation includes cabling, junction boxes, inverters, and grid-tie meters.
  
  All of the associated companies that supply the materials and services need offices filled with managers and accountants, advertising executives and sales teams, system designers, and lots of computers and telephones, cars to get people to work and so on.
  
  All of this has to be set up before the first panel can start its slow trickle of energy for the next 25 years.
  Long before this energy expenditure has been repaid, you need to build the whole lot all over again to increase production. And this process is repeated again and again if you want to scale up to a significant part of the national energy mix.
  
  All I am saying is that unless you have worked out all this stuff and drawn up an energy budget for it, and modeled it over the lifetime of the transition to renewables, you could be fooling yourself into thinking you have the solution to our energy problems.